Delhi High Court
M/S Kohli Housing And Development ... vs M/S Convenience Enterprises Pvt. ... on 27 April, 2009
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 08.04.2009
% Date of decision : 27.04.2009
+ FAO (OS) No.200/2006
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...APPELLANTS
Through: Mr.Shailen Bhatia,
Mr.Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
Versus
M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT
Through: Mr.A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
+ FAO (OS) Nos.201-203/2006
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...APPELLANTS
Through: Mr.Shailen Bhatia,
Mr. Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
Versus
M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT
Through: Mr. A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
+ FAO (OS) No.207-209/2006
FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 1 of 30
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...APPELLANTS
Through: Mr.Shailen Bhatia,
Mr. Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
Versus
M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT
Through: Mr. A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
+ FAO (OS) No.219/2006
M/S CONVENIENCE ENTERPRISES PVT. LTD ...APPELLANT
Through: Mr. A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
Versus
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...RESPONDENTS
Through: Mr.Shailen Bhatia,
Mr. Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
+ FAO (OS) No.240/2006
M/S CONVENIENCE ENTERPRISES PVT. LTD ...APPELLANT
Through: Mr. A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 2 of 30
Versus
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...RESPONDENTS
Through: Mr.Shailen Bhatia,
Mr. Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
+ FAO (OS) No.226/2006
M/S CONVENIENCE ENTERPRISES PVT. LTD ...APPELLANT
Through: Mr. A.S.Chandhiok
Mr.Aman Lekhi, Sr.Advs.
with
Mr.Nitin Sharma,
Mr.Mayank Chawla &
Mr.Gagan Chhabra, Advocates.
Versus
M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS.
...RESPONDENTS
Through: Mr.Shailen Bhatia,
Mr. Rohit Aggarwal,
Ms.Vandana Nathan &
Ms.Ekta Nayar Saini, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE SUDERSHAN KUMAR MISRA
1. Whether the Reporters of local papers
may be allowed to see the judgment? Yes
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be Yes
reported in the Digest?
SANJAY KISHAN KAUL, J.
1. In this judgment, M/s.Kohli Housing & Development Pvt. Ltd
and Ors have been referred to as the appellants while M/s
Convenience Enterprises Pvt. Ltd has been referred to as the
respondent.
2. The respondent filed three separate suits being CS(OS)
Nos.9-11/06 against the appellants alleging that in the year
2005 monies were paid by them towards sale consideration
in respect of three plots in Malibu Towne, Gurgaon, Haryana
to the appellants who were seeking to back out of the
transaction. On the other hand, the case of the appellants is
that the time period for making the balance payment had
expired and the earnest money stood forfeited.
3. The parties with the assistance of counsel arrived at a
Memorandum of Settlement („MOS‟ for short) to compromise
all the three suits and executed the same on 23.01.2006.
The said MOS records in para 4 that an out of court
settlement had been arrived at between the parties in
pursuance whereto the appellants had paid to the
respondent both cash and pay orders/bank drafts. It may be
noticed that while the original earnest money paid was less,
almost double that amount was agreed to be paid as under:
Plot No. By Draft Draft No. Drawn On By Cash Total
and Date
15 Pine 6,82,000/- 990255 Citibank N.A., 18,000/- 7,00,000/-
Drive 21.1.2006 Jeevan Bharati,
Connaught Circus,
New Delhi
18 Pine 6,82,000/- 990256 Citibank N.A., 18,000/- 7,00,000/-
Drive 21.1.2006 Jeevan Bharati,
Connaught Circus,
New Delhi
10 Club 8,82,000/- 990257 Citibank N.A., 18,000/- 9,00,000/-
Road 21.1.2006 Jeevan Bharati,
Connaught Circus,
New Delhi
4. Since it is this agreement which forms the substratum of the
present dispute, it is necessary to reproduce the relevant
clauses of the same, which are as under:
"5. The First Party and Dr.R.K.Anand confirm
that they have received the aforesaid
amounts as indicated in para 4 above and
inconsideration of the aforesaid payments all
rights, title and interest of the First Party and
Dr.R.K.Anand in the abovementioned plots,
pursuant to all the aforesaid Agreements
dated 08.04.2005, 25.04.2005 and 12.05.2005
executed between the parties stand fully
satisfied and extinguished and the First Party
and Dr.R.K.Anand are left with no other or
further claims, rights, title or interest in the
said plots. In consideration of the said
payments the First Party and Dr.R.K.Anand
have also agreed to unconditionally withdraw
CS(OS) Nos. 9/2006, 10/2006 and 11/2006,
pending before this Hon‟ble High Court.
Similarly, the Second Party, Third Party and
Fourth Party also have no grievances and/or
claim of any nature, whatsoever, against the
First Party and Dr. R.K.Anand.
6. The parties further agree that with the
execution of this Memorandum of Settlement
all the parties have been released and/or
relieved of their respective obligations under
the said Agreements and all the said
Agreements stand revoked, cancelled and
terminated absolutely and forever.
7. The First Party and Dr.R.K.Anand in
consideration of the aforesaid payment
specified in para 4 above also hereby agrees
and undertakes not to file any other legal
proceedings in any other Court/Forum in
respect of the said plots against the Second
and Third Party or Fourth Party or any other
person and confirm that they have not
entered into any transaction in respect of Plot
No.15, Pine Drive and Plot No.18, Pine Drive,
Malibu Town, Gurgaon with any other party or
created any other party rights in respect
thereof. However, in respect of Plot No.10,
Club Road, Malibu Town, Gurgaon, an
agreement on 4th day of May, 2005 was
entered into by the First Party with one
Mr.Kanwar Ajay Mahipal, S/o Sh.N.S.Mahipal,
R/o 74, Hemkunt Colony, G.K.-I, New Delhi -
110048, which agreement stood
terminated/cancelled and is legally not
binding and enforceable according to the First
Party.
8. That this Memorandum of Settlement
has been executed in full and final settlement
of all claims of all parties including Dr.
R.K.Anand and no party hereto has any claim
of any nature whatsoever left against each
other. All the parties to this Memorandum of
Settlement hereby agree and undertake that
they have no cause of action for filing any
legal proceedings of any nature, whatsoever,
against each other in relation to the aforesaid
plots and the aforesaid agreements. The
parties to this Memorandum of Settlement
further declare that except the above three
civil suits, no other civil and/or criminal
proceedings have been either filed or are
pending by or against each other.
9. The First Party and Dr.R.K.Anand have
returned the three original Agreements to Sell
dated 08.04.2005, 25.04.2005 and 12.05.2005
to the Second Party the receipt of which the
Second party hereby confirms and
acknowledges.
10. Simultaneously with the execution of this
Memorandum of Settlement the First Party
and Dr.R.K.Anand have also authorized and
empowered Dr.R.K.Anand and/or Mrs. Nalini
Sarin, wife of Mr. Varun Sarin, jointly and/or
severally to take allsteps necessary to
withdraw CS(OS) Nos. 9/2006,10/2006 and
11/2006 filed by the First Party and
Dr.R.K.Anand in the Hon‟ble High Court of
Delhi.
11. The parties further agree that both the
parties shall move a joint application for
withdrawal in terms of this Memorandum of
Settlement in CS(OS) Nos.9/2006, 10/2006
and 11/2006 before the Delhi High Court. This
Memorandum of Settlement has been signed
and executed by the Parties hereto in five
parts, one each to be annexed with the joint
application to be filed in each of the aforesaid
three suits and one copy each will be retained
by the First Party and one copy collectively by
the Second, Third and Fourth Party."
(emphasis supplied)
5. A joint application was also prepared by the parties under
Order 23 Rule 3 r/w Section 151 of the Code of Civil
Procedure, 1908 („the said Code‟ for short). A copy of the
MOS dated 23.01.2006 was annexed as Annexure „A‟ to the
application. It was averred in the application that with the
execution of MOS, the claims of the parties did not survive
and the suits be dismissed in view of the MOS. The
application was signed on 24.01.2006.
6. The date fixed before the Court was 25.01.2006, but no
proceedings were held on that date on account of the
Presiding Officer not taking court. The pay orders/bank
drafts which were prepared and handed over to the
respondent were in the name of „M/s. Convenience
Enterprises Limited‟. It is the case of the appellants that
they realized that while the name of the respondent was M/s.
Convenience Enterprises Private Limited, the word „Private‟
was missing from the pay orders/bank drafts. Thus, even
prior to the date fixed of 25.01.2006, the appellants got
prepared fresh pay orders/bank drafts on 24.01.2006 and
even filed an application on 28.01.2006 seeking directions
that the respondents be directed to accept the fresh pay
orders and return the original ones.
7. The respondent, however, took the stand before the Court
that they had presented the pay orders/bank drafts which
could not be credited to their account on account of the fact
that the word „Private‟ was missing. In fact, the pay
orders/bank drafts were even re-presented to Citi Bank N.A.,
which had issued the pay orders/bank drafts, to facilitate the
encashment, but even there the same problem arose. The
respondent thus pleaded that the consideration had failed
and the settlement was over. In fact, the respondent backed
out of the settlement on account of the pay orders/bank
drafts not being honoured on account of name of the
respondent not having the word „Private‟ in the pay
orders/bank drafts. This was succeeded by the respondent
filing an application that the settlement could not be
accepted as it was obtained under fraud, coercion and undue
influence.
8. The aforesaid applications were decided by the impugned
order dated 10.03.2006 by the learned Single Judge of this
Court. The learned Single Judge concluded that the
respondent had been unable to establish a case of undue
influence, coercion or fraud. However, simultaneously, the
learned Single Judge has come to the conclusion that though
the parties had freely entered into the MOS, the erroneous
description of the respondent in the pay orders/bank drafts
and the consequent inability of the respondent to encash
them is of crucial importance. The consideration as per the
MOS had not passed on to the respondent even though it had
done whatever was required of him including handing over all
the original documents to the appellants at the time of the
settlement. The learned Single Judge concluded that there
was time and occasion for the appellants to make the
payments but they had let it slip by and the respondent had
not condoned the lapse and thus the respondent could not be
compelled to accept the settlement. The result was that the
suits were liable to be proceeded with as the MOS was held
to be voidable. The learned Single Judge in the end observed
that he was satisfied that there has been a failure of
consideration and, therefore, the agreement between the
parties is voidable. Both the parties were aggrieved by the
said order and have filed separate appeals. The appellants
are aggrieved by the non acceptance of the pay orders/bank
drafts by the respondent as per the MOS while the
respondent has filed the appeals on account of the finding
that there was no fraud, coercion or undue influence.
9. The findings of the learned Single Judge that the MOS was
entered into freely could not really be assailed. The
allegation of fraud, coercion and undue influence was made
by the respondent for the first time only in a lawyer‟s notice
dated 27.01.2006. Prior to that, the cash amount had been
accepted as also the pay orders/bank drafts. The pay
orders/bank drafts were presented for payment and re-
presented for payment. Compromise application had also
been signed. Other than the bald allegation of fraud,
coercion and undue influence, nothing has been
substantiated. The respondent had made corrections in the
MOS including incorporating of facts known only to the
respondent like the further transaction between the
respondent in respect of one of the plots with a third party.
The electronic correspondence between the parties also
showed the free application of mind by both the sides before
signing the MOS. This also appears to be the reason that the
respondent has made no effort to even canvass the said
proposition. It is trite to say that an allegation of fraud must
be clear, definite and specific and general allegations
unaccompanied by particulars are insufficient to amount to
an averment of which judicial notice can be taken. We draw
strength from the observations made by the Supreme Court
in A.C.Ananthswamy v. Boraiah; (2004) 8 SCC 588 where in
para 5, it was observed as under:
"To prove fraud, it must be proved that
representation made was false to the
knowledge of the party making such
representation or that the party could have no
reasonable belief that it was true. The level
of proof required in such cases is extremely
higher. An ambiguous statement cannot per
se make the representor guilty of fraud. To
prove a case of fraud, it must be proved that
the representation made was false to the
knowledge of the party making such
representation. (See Pollock & Mulla: Indian
Contract and Specific Relief Acts (2001), 12th
Edn., p.489)"
There is, thus, no infirmity with the finding of the learned
Single Judge on this account.
10. The real bone of contention between the parties arose
as a consequence of pay orders/bank drafts not being
honoured by the bank on account of the word „Private‟
missing from them. A question thus arises whether there
was a failure of consideration making the MOS voidable at
the option of the respondent as concluded by the learned
Single Judge or whether the agreement continued to be
binding between the parties in view of the facts and
circumstances of the case.
11. Learned counsel for the appellants emphasized that the
learned Single Judge had lost sight of the fact that part of the
consideration was already paid and accepted by the
respondent in cash. The respondent had accepted the pay
orders/bank drafts after verifying the same. Thus, the
respondent was satisfied with the receipt of the cash and pay
orders/bank drafts and the full consideration in that manner
had passed. This was also so recorded in the MOS dated
23.01.2006. Learned counsel invited the attention of this
Court to para 6 of the MOS where it was clearly stated that
the parties had agreed that with the execution of MOS all the
parties had been released and/or relieved of their respective
obligations under the said agreement and all the agreements
stood revoked/cancelled and terminated absolutely and
forever. It was thus contended that the respondent never
objected that its name was not correctly reflected in the pay
orders/bank drafts. The factum of presentation of the pay
orders/bank drafts by the respondent itself showed that the
respondent thought that the pay orders/bank drafts would be
honoured and the absence of the word „Private‟ would not
make any difference as there were no two separate legal
entities - one being a public company and one being a
private company. In the alternative it was submitted that at
best it could be treated as a case of mis-description of the
name of the respondent by a bona fide mistake and the
appellants being conscious of the possibility of a problem had
got a second set of pay orders/bank drafts prepared with the
word „Private‟ included in them on 24.01.2006 itself i.e. the
very next day and before the first date fixed in the Court.
The account of the appellants, in fact, had been debited
twice by getting two separate sets of pay orders/bank drafts
and continued to be so debited since both the sets of pay
orders/bank drafts are lying in the Court.
12. Learned counsel for the appellants also sought to
challenge the findings of the learned Single Judge about the
time being the essence of the contract since the matter
related to immoveable properties and the cancellation of
agreement in respect thereof. It was, thus, contended that it
was not open to the respondent to wriggle out of the
compromise arrived at or oppose the joint application filed by
the parties. In support of its contention, learned counsel
referred to the judgment of the Apex Court in Swarnam
Ramachandran (Smt.) and Anr. v. Aravacode Chakungal
Jayapalan; (2004) 8 SCC 689 and of the learned Single Judge
in Kuldip Gandotra v. Shailendra Nath Endlay & Anr.; AIR
2007 Delhi 1.
13. Learned counsel for the appellants in order to support
the plea that the respondent cannot wriggle out of the
compromise application filed under Order 23 Rule 3 of the
said Code relied upon judgments in Parmod Kumar Rastogi v.
Gian Chand Jain; 1996 AIHC 3756 and Mathulla Verghese and
Anr.v.Mrs.Vijaya and Ors; 2001 AIHC 966. However, these
judgments are really in respect of the mode and manner of a
compromise application being filed, which is not really
germane to the present issue. Learned counsel also referred
to the judgment in XS Financial Services Ltd. and Anr. v.
N.Devendran and Ors; AIR 2003 Madras 369 where the
Division Bench had observed that once a memorandum of
compromise is signed and produced before the Court, the
Court shall presume that the memorandum of compromise
has been entered into with full understanding of its terms. It
may once again be observed that there is really no dispute
about the compromise being arrived at in the present case.
14. A reference was also made to the judgment in
Amteshwar Anand v. Virender Mohan Singh & Ors; (2006) 1
SCC 148 where a compromise decree was sought to be
subsequently re-opened on account of the alleged non-
payment. It was held that mere non-payment was certainly
not supportive of ground for setting aside the decree on the
basis of allegation of fraud but that the applicants could
execute a decree for money due under the compromise
decree.
15. Learned counsel for the appellants next sought to refer
to provisions of Section 93 of the Negotiable Instruments Act,
1893 („the said Act‟ for short) to contend that there was no
notice issued by the respondent of dishonor and the
appellants had taken immediate steps to rectify the
consequences of the mistake. The relevant provisions are
as under:
"92. Dishonors by non-payment.- A
promissory note, bill of exchange or
cheque is said to be dishonored by non-
payment when the maker of the note,
acceptor of the bill or drawee of the
cheque makes default in payment upon
being duly required to pay the same.
93. By and to whom notice should be
given.-
When a promissory note, bill of exchange
or cheque is dishonored by non-payment,
the holder thereof, or some party thereto
who remains liable thereon, must given
notice that the instrument has been so
dishonored to all other parties whom the
holder seeks to make severally liable
thereon, and to some one of several
partied whom he seeks to make jointly
liable thereon.
Nothing in this section renders it necessary
to give notice to the maker of the
dishonored promissory note, or acceptor of
the dishonored bill of exchange or cheque.
16. Learned counsel also relied upon the judgment in
Raghunath Rithkaran v. The Imperial Bank of India Ltd; 1925
Volume XXVII 1229. In the facts of the case, the bank had
presented four hundis for payment to the plaintiffs. Hundis
were all alike in outward appearance and written out in the
same hand and bearing the same nishani. Three of the
hundis were drawn against the plaintiffs while the fourth one
was not drawn against the plaintiff, but against a different
person altogether. The bank failed to bring the mistake with
reference to one of the hundis to the notice of the plaintiffs
when they accepted the hundis. The plaintiffs paid off the
amount of the four hundis in couple of hours in entire
ignorance of the fact that one of the hundis was not drawn on
them at all. The mistake committed was not even noticed
when the plaintiffs entered the hundis in their Nondh book.
17. A difference of opinion between the two judges gave
rise to a reference. One of the judges was of the opinion
that the plaintiffs were not entitled to recover both on
account of negligence in not examining the terms of the
hundis when they accepted them and of their delay in not
calling upon the bank as soon as the mistake came to their
notice afterwards. The second opinion was that the bank
was also equally guilty of negligence in not noticing the
drawee‟s name and in making a wrong presentment and the
bank failed to prove that they were prejudiced by reason of
delay on plaintiffs part.
18. On reference, the third Judge opined that the plaintiffs
accepted the position as drawees of the hundis on account of
mutual relationship with the bank which cast on them a duty
to inform the bank within a reasonable time that they had
accepted that position under a mistake of fact. It was
observed that in case of negotiable instruments, mistakes of
this kind should be noticed within a reasonable period of time
which they failed to do.
19. The aforesaid judgment has been relied upon by the
learned counsel for the appellants to support the plea that it
is, in fact, the appellants who took remedial steps to correct
the mistake without any loss to the respondent while the
respondent had not even notified them of the mistake of
accepting the pay orders/bank drafts drawn in the manner as
was so done.
20. A reference has also been made to the commentary of
Tannan‟s on Banking Law and Practice in India, 20th Edition,
2001 where on pages 317-318. it has been observed as
under:
"Apparent mistakes do not vitiate the validity
of Cheques - The validity of cheques is not
vitiated by mistakes which can be easily
discovered and which are apparent. An
instrument is not rendered invalid by an
apparent mistake, e.g., an omission in the
written words, as long as the intention is quite
clear - see Halsbury‟s Laws of England, 2nd
Edition, Vol.II, p.713. Thus, a bill where the
word "pound" is used instead of "pounds" does
not thereby become invalid."
21. Learned counsel also referred to the Halsbury‟s Laws of
India; Volume 4:
"{30.030} Payee maybe mentioned by
name or description
Where the payee is named incorrectly, or
where his name is misspelt, the instrument is
not invalidated, the payee being permitted
indorse the instrument as he was described,
adding at his option his proper signature.
It is sufficient that the payee should be
indicated without being actually named if the
indication is reasonably precise.
Where there are two persons of the same
name who are possible payees, the
presumption will be that the one indorsing the
instrument was the person intended.
An instrument may be made payable to two or
more payees jointly, or it may be made
payable in the alternative to one of two, or one
or some of several payees.
An instrument may also be made payable to
the holder of an office for the time being."
22. It would be useful also to refer to the judgment of the
Supreme Court in K.Venkata Seshiah v. Kanduru
Ramasubramma (dead) by LRs; (1991) 3 SCC 338 which dealt
with an application under Order 23 Rule 3 of the said Code.
It was held that once a compromise was found to be genuine
and lawful, the same has to be acted upon. In the facts of
the case, there was a compromise between the father and
his two sons which stipulated payment of Rs.1 lakh by father
to each of his sons in view of relinquishment of their interest
in the property. The sale pendente lite of a part of the land
by one of the sons to a third party was held to be invalid as
he had no interest in the property to part with in view of the
stipulation in the compromise.
23. In K.Venkata Seshiah v.Kanduru Ramasubramma (dead)
by LRs‟s case (supra), a reference has been made to a
judgment in Bhaja Govinda Maikap v. Janaki Dei; AIR 1980 Ori
108 and the principle set out in that judgment has been
approved. We thus re-produce the observations made in
para 3 of Bhaja Govinda Maikap v. Janaki Dei‟s case (supra)
as under:
"The underlined words have been inserted by
amendment in 1976. If a party to a suit alleges
that a suit has been adjusted by a lawful
agreement and applies to the court to record an
agreement and to pass a decree in accordance
therewith but the other party to the suit denies
the agreement or wishes to resile from it, the
question arises whether the court has power in
the one case to decide if the agreement was
effected and to pass a decree accordingly; and
in the other case to pass a decree in spite of the
other party's reluctance. The Bombay, Madras
and Calcutta High Courts had taken the view
that the court had jurisdiction to do so, (See
Goculdas Bulabdas Mfg. Co. Ltd. v. James Scott,
(1892) ILR 16 Bom 202; Appasami Nayakan v.
Varadachari, (1896) ILR 19 Mad 419;
Brojodurlabh Sinha v. Ramanath Ghose, (1897)
ILR 24 Cal 908 (FB) while the Allahabad High
Court had taken the view that unless parties to
the compromise appeared before the court and
accepted the terms, at the moment of moving
the court, the Court had no jurisdiction to record
the compromise (See Bandhu Bhagat v. Shah
Muhammad Taqiu, (1892) ILR 14 All 350. These
were decisions rendered prior to the Code of
1908. Rule 3 of Order 23 of the Code of 1908
accepted the view of the Presidency High
Courts.
The words "where it is proved to the
satisfaction of the court that a suit has been
adjusted wholly or in part" clearly show that the
court has power under this rule, where an
agreement or compromise is denied, to decide
whether as a fact the alleged agreement of
compromise was made and if it is satisfied that
it was made, to record it. (see Jai Govind Singh
v. Bagal Lal Singh, AIR 1950 Pat 445). The
observations of the Privy Council in the case of
Sourendra Nath Mitra v. Tarubala Dasi, AIR 1930
PC 158, also lend support to this view. If there
had been a lawful compromise, the objections
raised by the plaintiffs in their petition of 28th
Feb. 1979, did not authorise the court to refuse
to record the compromise. 'Besides, the
compromise was also not disputed by the third
defendant who had received Rs. 1,000/- in lieu
of any claim to a share in the property. The
learned Trial Judge obivously missed the point
and exercised jurisdiction vested in him contrary
to law."
24. Learned senior counsel for the respondent on the other
hand sought to support the impugned judgment and while
doing so highlighted the fact that though the application as
drawn was under Order 23 Rule 3 of the said Code, the
prayer made was really one under Order 23 Rule 1 of the said
Code as it was for withdrawal of the suit. Learned counsel
submitted that the nature and necessity of the MOS is to be
construed as making time the essence of the contract and
the non-payment resulted in the same being voidable at the
option of the respondent. Since the respondent was not
willing to proceed with the settlement, it could not be
compelled to do so.
25. Learned counsel further submitted that the pay
orders/bank drafts were drawn not in the name of the
respondent but a different entity altogether and thus the
MOS itself was without consideration which was not known to
either of the parties until the presentation and dishonour of
pay orders/bank drafts and thus making the MOS void and
the subsequent payment could not revive it. Learned
counsel drew our attention to Section 54 of the Indian
Contract Act, 1872 („the Contract Act‟ for short) to contend
that there was an element of reciprocal promise and the
violation of consideration amounted to the reciprocal promise
not being performed. Learned counsel also drew our
attention to provisions of Section 20 of the Contract Act to
contend that where the agreement is under a mistake as to
matter of fact essential to the agreement, the agreement is
void. Section 20 of the Contract Act reads as under:
"20. Agreement void where both parties are
under mistake as to matter of fact - Where
both the parties to an agreement are under a
mistake as to a matter of fact essential to the
agreement, the agreement is void.
Explanation - An erroneous opinion as to the
value of the thing which forms the subject of
the agreement, is not to be deemed as mistake
as to a matter of fact."
26. Learned counsel referred to the judgment of the Patna
High Court in Jagarnath Keyal and Ors v. Nagar Mull and Anr.;
AIR 1962 Patna 426 where an application was filed under
Order 23 Rule and 1 and 3 of the said Code. The application
was held to be merely one for withdrawal of suit under Order
23 Rule 1 of the said Code and not for recording compromise
and such an application could be withdrawn.
27. A reference was also made to National Insurance
Co.Ltd. v. Seema Malhotra and Ors; (2001) 3 SCC 151 where
a premium of insurance was unpaid because the cheque of
insured was dishonored. It was held that the contract of
insurance was void and therefore if the insurer had disbursed
the amount to the insured before dishonouring of the cheque,
he was entitled to reimbursement. Learned senior counsel
for the respondent drew our attention to the commentary of
Pollock and Mulla on Indian Contract and Specific Relief Acts
13th Edition Volume I where while dealing with the question
of time being the essence of the contract, it was observed as
under:
"Intention of the Parties
The question, whether time is of the essence
f the contract, does not depend upon express
stipulation to that effect made by the parties,
but it depends upon the intention of the
parties. Notwithstanding that a specific date
is mentioned, one has not to look at the
letter but at the substance of the contract.
Whether time is of essence is a question of
fact, and the real test is the parties‟ intention.
It depends on the facts and circumstances of
each case. An intention to make time of the
essence of the contract must be expressed in
unmistakable language, indicating that the
parties wanted to make their rights
dependent upon observation of time limits.
The intention of the parties can be
ascertained from:
i) The express words used in the contract;
ii) The nature of the property which forms
the subject matter of the contract;
iii) The nature of the contract itself; and
iv) The surrounding circumstances.
The question of intention of parties is a
question of fact, or may be a mixed question
of law and fact."
28. Learned counsel submitted that it was not within the
powers of the Court without the consent of the parties to
grant extension of time for performance and relied upon the
observations made in Novartis AG v. Wander Pvt. Ltd; 114
(2004) DLT 625 for the said proposition.
29. A Division Bench of this Court in Iqbal Krishan v.
Maharaj Krishan; 68 (1997) DLT 318 had observed that on an
application under Order 23 Rule 3 of the said Code,
adjustments must be by any lawful agreement or
compromise and be in presenti. It must thus precede the
date on which the Court is called upon to exercise its
jurisdiction under Order 23 Rule 3 of the said Code as the use
of the phrase "has been adjusted" clearly suggests. In Chin
Gwan and Co. v. Adamjee Hajee Dawood and Co.; AIR 1933
Rangoon 79, it was held that Section 20 of the contract
applies only when there is a mutual mistake of fact which
goes to the root of the contract.
30. Lastly, learned counsel invited attention of the Court to
the aspect of failure of consideration and submitted that
under Section 25 of the Contract Act, an agreement without
consideration is void unless it is made on account of natural
love and affection or is a compromise to compensate for
something done.
31. On hearing learned counsel for the parties, we find that
both the learned counsel for the parties have traversed paths
which are not really germane to the controversy in question.
The controversy is within a limited scope. The MOS was
undisputedly singed by both the parties. The terms of
settlement, if closely looked into, clearly provide that on the
execution of the settlement itself, the parties are relieved of
the obligations under the original agreements (para 6 of the
MOS as notice above).
32. The respondent confirmed the receipt of the amounts
as set out in para 4 of the MOS and extracted aforesaid
herein whereby Rs.18,000/- each was received in cash in
respect of three properties apart from the pay orders/bank
drafts. The rights, title and interests of the respondent stood
extinguished pursuant to the cash received as also the pay
orders/bank drafts. (para 5 of the MOS as notice above). The
parties were left with no claim whatsoever against each
other. The parties agreed to move a joint application for
withdrawal in terms of the settlement.
33. The present case is not one where a cheque issued
bounced. A pay order/bank draft/ banker‟s cheque is issued
after debiting a party‟s account. It is almost as good as cash.
A reference in this regard can also be made to a decision of
the Kerala High Court in Varghese v. Annamma; ILR (1971)
Ker 494 where a question arose as to whether a tender of
money under an agreement was not proper as it was made
not by cash but by demand draft. It was observePd under:
"9. According to me, an offer of payment
may be made in any form in which, in the
common course of events, the payment
represents and produces cash and would be
treated as such by persons placed in the
position of the parties to the transaction. In
business circles, payment by cheque or
demand draft, by a party situate at one place
to a party at another is a normal mode. It
may be that the parties may not be willing to
take a cheque. That depends upon the
extent of faith in the party issuing the cheque
and the commitment the party receiving the
cheque has to make before cashing the
cheque. But normally there would be no
objection in receiving a demand draft in lieu
of payment in cash. Such mode of payment
has come to stay. If in the normal course of
events parties have come to view an offer of
payment by demand draft as a valid form of
offer, I see no reason why I should take the
view that unless there is an offer of cash
there is no offer of payment................"
10. In view of what I have stated above, I
hold the view that a tender by way of
demand draft is a valid tender of money."
Of course, it has to be drawn in favour of the party with
whom the settlement was arrived at. The negotiable
instrument was so drawn but the word "Private" was omitted.
This fact was not pointed out by the respondent at any stage
and they accepted the negotiable instrument as drawn in full
and final satisfaction of the claim. If there was a mistake in
drawing the same, it ought to have been pointed out by the
respondent at the stage of execution of the MOS. It is
obvious that the respondent also did not find any irregularity
in the pay orders/bank drafts as not only did they accept the
same, but even presented them to their banker. The
problem came to light when there was some objection and
the credit was not forthcoming to the account of the
respondent who thereafter sought to represent the same,
which also met the same fate.
34. It is not the case of the respondent that they ever
informed the appellants about this problem or gave a notice
in terms of Section 93 of the said Act. On the other hand, it
is the appellants who sought to remedy the position
apprehending a problem and not wanting the respondent to
suffer any adverse consequences. Thus fresh pay
orders/bank drafts were prepared by the appellants on the
very next date i.e. 24.01.2006.
35. The respondent appears to have had a second thought
and sought to back out the compromise ostensibly on the
ground that the pay orders/bank drafts/banker‟s cheques
were not encashed even though the fresh pay orders/bank
drafts/banker‟s cheques were available.
36. The appellants even took the precaution of filing an
application immediately seeking directions for the new pay
orders/bank drafts to replace the earlier pay orders/bank
drafts on 28.01.2006 i.e. within three days of the date fixed
before the Court when no proceedings were held. The intent
of the respondent to somehow back out of the settlement is
apparent from the fact that belatedly they sought to raise the
issue of fraud, coercion and undue influence, which has been
rightly rejected. If all these facts are read in conjunction, it
is apparent that fresh pay orders/bank drafts in the right
name were available rectifying the mistake which mistake
had never been pointed out by the respondent.
37. We are unable to accept the conclusion of the learned
Single Judge that there has been failure of consideration.
The settlement arrived at itself shows that part consideration
in cash had already been received. Thus, part consideration
had already passed and only the balance consideration was
received by pay orders/bank drafts in which the respondent
found no fault. We also fail to appreciate as to how the
learned Single Judge has come to the conclusion that the
erroneous description of the respondent and the consequent
failure to encash them resulted in the relevant time and
occasion slipping by. It is not really a case of condonation
of lapse or the MOS being voidable at the option of the
respondent much less being void. No principle of law can be
considered de hors the facts of a case. The initial document
submitted was not a cheque but a pay order/bank draft which
is as good as cash. Even the name of the respondent was
shown correctly, but the word "Private" was missing. The
consequence was that it would appear to be in the name of a
public limited company, but not a different company.
Undisputedly, there cannot be a private and a public limited
company by the same name. The mistake, if any, was
capable of being rectified. The conduct of the respondent
itself showed that they did not even perceive it as a mistake.
It is not an agreement without consideration as under Section
25 of the Contract Act.
38. Learned senior counsel for the respondent sought to lay
great emphasis on Section 20 of the Contract Act. The
provision envisages an agreement under a mistake as to
matter of fact essential to the agreement, the agreement is
void. We find no such mistake. If the sum of Rs.18,000/-
was received by the respondent, the respondent knew it was
to the credit of the said respondent-entity, a private limited
company. Thus, part consideration had passed. The
respondent also did not think there would be any difficulty in
encashing the pay orders/bank drafts and that is why raised
no objections at the relevant stage.
39. Be that as it may, the pay orders/bank drafts were
ready the very next day and the information to the
appellants could have resulted in the same being handed to
the respondent and being presented for encashment. There
would have been practically no delay since the case was
listed before the Court after that date. The fact that the
respondent did not bring any such mistake to the notice of
the appellants in a sense makes the situation similar to the
one which arose in Raghunath Rithkaran v. The Imperial Bank
of India Ltd‟s case (supra). In those facts also, one of the
hundis was against a third person. In the present case, of
course, the name is correct though the word "Private" is
missing.
40. We find support in our conclusion from the observations
made in Tannan‟s commentary on Banking Law and Practice
in India that validity of cheques is not vitiated by mistakes
which can be easily discovered and which are apparent.
The respondent would certainly know in whose name it
wanted the cheque and accepted the cheque in the name of
a non private limited company. Such a instrument cannot be
rendered invalid as long as the intention is clear. It is thus
clear that the respondent acquiescencesd and approbated in
handing over the cheques in the name of a public limited
company and not a private limited company. In fact,
Halsbury‟s Laws of India goes as far as to say that where a
payee‟s name is incorrect or misspelt, the instrument is not
invalid, the payee being permitted to indorse the instrument
as he was described.
41. The significance of the receipt of part consideration
supported by the commentary of Ansons‟s on Law of
Contract; 27th Edition to the following effect:
"Failure of consideration occurs
where one party has not enjoyed the
benefit of any part of what it
bargained for. It is judged from the
payer‟s point of view and
consideration in this context refers to
performance by the payee of the
contractual promise. This means that
any performance of the actual thing
promised, as determined by the
contract, is fatal to recovery."
42. The aforesaid observations show that the very premise
of failure of consideration has not occurred since
undisputedly the respondent has taken Rs.18,000/- per plot
in cash under the compromise. The observations in
Amteshwar Anand v. Virender Mohan Singh & Ors‟s case
(supra) are relevant to the extent that once a compromise is
correctly arrived at and some payment remains outstanding,
even if the decree is passed, the remedy was held not to
open the compromise, but seek recovery of the balance
amount. Appellants herein have, in fact, all along been
ready and willing to replace the pay orders/bank drafts and
had got prepared such duplicate pay orders/bank drafts in
the correct name including the word "Private" the very next
day at their own expense and with the consequence of the
amount being debited twice over in their account. Such pay
orders/bank drafts are still lying in the Court as informed to
us by the learned counsel for the parties.
43. We are of the considered view that once a compromise
is genuine and lawful, the same must be acted upon as
observed in K.Venkata Seshiah v.Kanduru Ramasubramma
(dead) by LRs‟s case (supra) which in turn had approved the
dictum of Bhaja Govinda Maikap v. Janaki Dei‟s case (supra).
44. The application had been styled as one under Order 23
Rule 3 of the said Code. The prayer no doubt is that the suit
of the plaintiff (respondent herein) be dismissed, but it is not
a simpliciter prayer as the suit is prayed to be dismissed "in
view of the Memorandum of Settlement, Annexure „A‟
hereto". Thus, the parties were legally advised and correctly
moved the application under Order 23 Rule 3 of the said
Code as the parties wanted the compromise to be taken on
record and the claim of the respondent to be treated as
satisfied on payment of much larger amount (almost double
the original amount) than what was paid as earnest money.
Thus, instead of enforcing the rights against the plots being
the properties in question, the respondent chose to accept
almost double the amount of earnest money in full and final
satisfaction of the claim, out of which part amount was
accepted in cash and appropriated while the remaining
amount was received through the disputed pay orders/bank
drafts. The MOS arrived at was annexed to the application so
that the Court was conscious of the nature of settlement
arrived at between the parties. We may also notice that the
suits as framed are for permanent injunction and declaration
and have not been styled as suits for specific performance.
The claim thus stood satisfied on the respondent‟s
unconditional acceptance of the cash amount and the pay
orders/bank drafts as they stood drawn at the relevant stage.
45. If we were to accept the plea of the respondent, in our
view, it would be a premium on dishonesty permitting a party
which has partly appropriated the amount and which had
unconditionally accepted the pay orders/bank drafts as
drawn, to resile from the settlement. The intention of the
parties was clear. In fact, time was not even the essence of
the contract nor was it mentioned as such apart from the fact
that there has not been any loss of time. It is not a case
where some extension of time to perform the obligations
under the agreement was sought to be obtained from the
Court. The agreement was lawful.
46. We are unable to appreciate the significance of the
judgments referred by the learned senior counsel for the
respondent in this behalf including Iqbal Krishan v. Maharaj
Krishan‟s case (supra) since the lawful agreement making the
adjustment was preceding the application under Order 23
Rule 3 of the said Code or in any case regarding the
acceptance of the said application by reason of the
appellants even having moved a requisite application in that
behalf to replace the earlier pay orders/bank drafts.
47. We are unequivocally of the view that the respondent
could not have wriggled out of the compromise and all that
was required to be done was to return the earlier pay
orders/bank drafts to the appellants and hand over the new
ones to the respondent. Both sets of pay orders/bank drafts
are lying in the Court. The first set of pay orders/bank drafts
is liable to be returned to the appellants so that they can be
encashed and credited to their account while the second set
of pay orders/bank drafts is also to be returned to the
appellants for purposes of re-validation as the time has now
passed. Necessary re-validation be done within a maximum
period of seven days of the same being handed over by the
Registry of this Court to the appellants and same after
revalidation be re-filed in the Court to be withdrawn by the
respondent.
48. The appeals of the appellants to the aforesaid extent
are accordingly allowed. The application made under Order
23 Rule 3 of the said Code as also the applications of the
appellants for replacement of the pay orders/bank drafts are
also allowed while the applications of the respondent to
withdraw from the settlement stand rejected. The appeals of
the respondent stand dismissed.
49. The appellants are also held entitled to costs quantified
at Rs.33,000/- for all the appellants.
SANJAY KISHAN KAUL, J.
APRIL 27, 2009 SUDERSHAN KUMAR MISRA, J.
dm
