Appeal No.195 of 1981

7th July, 1988.

Petitioner Counsel: E. P. Bharucha with P. R. Diwan i/b. H. V. Mehta and Co.,
Respondent Counsel: N. D. Vyas with M. D. Siodia with M. K. Engineer i/b. Gagrat and Co., .

Cases Cited:
AIR 1988 Guj 42 (Ref ) [Para 16]
AIR 1971 SC 1482 [Para 25]
AIR 1966 Cal 605 (Ref.) [Para 15]
AIR 1965 SC 1364 [Para 22]
AIR 1961 SC 1236 [Para 27]
AIR 1959 SC 689 [Para 22]
AIR 1949 Mad 265 (Ref.) [Para 14]
AIR 1944 Mad 387 [Para 22]
Harry Parker Ltd. v. Mason, (1940) 2 KB 590,(1940) 4 All ER 199,109 LJKB 985 (CA) [Para 22]
In Re - Mahmoud, (1921) 2 KB 716,90 LJKB 821,125 LT 161 (CA ) [Para 22]
Greenwood v. Sutcliffe, (1892) 1 Ch 1,61 LJ Ch 59,65 LT 797 (CA) [Para 10]
Scott v. Brown, (1872) 2 QB 724,61 LJQB 738,67 LT 782 [Para 22]
Scott v. Uxbridge and Rickmansworth Railway Company, (1866) LR 1 CP 596,14 LT 596,14 WR 893 [Para 10]

JUDGMENT

BHARUCHA, J. : -The plaintiffs (appellants) and the 3rd defendants (3rd respondents) manufacture steel drums, inter alia for oil companies like the 1st defendants (1st respondents) and the 2nd defendants (2nd respondents). The suit was not pressed in regard to the 2nd defendants so that in the appeal we are concerned with the facts that relate to the 1st and 3rd defendants.

2. At the relevant time steel was controlled under the Iron and Steel Control Order, 1956, issued in exercise of powers conferred by S.3 of the Essential Commodities Act. In or about Oct., 1967 there was a strike in the factory of the plaintiffs. On 25th Oct., 1967 an agreement was entered into between the plaintiffs and the lst and 3rd defendants. It was in the form of a letter addressed by the 1st defendants to

the plaintiffs and the 3rd defendants and it read thus : -

"This has reference to the discussion we had this afternoon with regard to the supply of 18 gauge lube oil barrels to our Mazagaon installation.

In view of our urgent requirements of lube oil barrels at the present time, and in view of the labour situation in the factory of Bharat Barrel, Bharat Barrel have kindly agreed to loan to Standard Barrel (3rd defs.) whatever incoming steel from Rourkela between now and up to the time the strike is settled who in turn will fabricate lube oil drums from this lot of steel and supply to Esso against a separate purchase order. It was also agreed that Standard Barrel would arrange to return to Bharat Barrel 50% of their steel receipts from Rourkela per month. This return shipment will take effect 8 days from the date Bharat Barrel commences production of 18 gauge barrels.

With regard to the mode of payment for the Steel sheets, Standard Barrel would retrieve documents from the bank by making payments as soon as intimation is received from the bank and at the time of return of the loan Bharat Barrel would in turn pay for the steel sheets against documents received from Standard Barrels. The 1% cash discount offered by Rourkela would apply in both transactions. Esso Standard Eastern takes the responsibility of ensuring that the steel loaned by Bharat to Standard is returned."

3. To this agreement there was a clarification in the form of a letter dt. 23rd Nov., 1967 addressed by the lst defendants to the plaintiffs and confirmed by the plaintiffs. The operative portion read thus : -

"We wish to clarify that this 50 per cent return is for the total quantity of steel used for Esso Standard Eastern, Inc., and Burmah Shell Oil Storages and Distributing Co., of India Ltd., i.e., Standard Drum and Barrels Mfg. Co. will retain for their own consumption 50 per cent of the total receipts against their quota of Hindustan Steel."

4. On 1st Mar., 1968 the strike in the plaintiffs' factory ceased and the plaintiffs sought replenishment of the steel that they had supplied to the 3rd defendants under the terms of the agreement. It is the plaintiffs' case that the 3rd defendants did not thereafter replenish the steel in the quantity required by the agreement and it is the case of the 1st and 3rd defendants that the plaintiffs did not take delivery of the steel as and when offered, but this was not made an issue in the pleadings.

5. On 30th July, 1968 the Joint Plant Committee raised the price of steel. The plaintiffs contended in correspondence that they were entitled to replenishment of steel under the agreement at the rate that was prevalent when the agreement was entered into. The 1st and 3rd defendants contended, on the other hand, that the plaintiffs were obliged to pay for the steel at the revised rate. Some deliveries were taken by the plaintiffs upon payment for the steel at the revised rate, but under protest, and in subsequent correspondence the plaintiffs claimed from the lst and the 3rd defendants the difference in regard to such steel between the revised and the old rate. For some time thereafter the plaintiffs did not take deliveries of steel. At a time when the plaintiffs experienced a shortage of steel they asked the lst and 3rd defendants for supply of steel upon payment of the revised rate under protest. The 1st and 3rd defendants did not comply with the demand upon these terms.

6. The plaintiffs then filed a suit for specific performance of the agreement. They did not make in the plaint any averment at all that they had been or were ready and willing to perform the agreement. The plaint proceeded upon the basis that the plaintiffs were entitled to specific performance of the agreement by payment for the steel at the old rate. The plaint sought a decree for the price difference between the old rate and the revised rate in regard to steel which had been paid for by the plaintiffs at the revised rate under protest. At the fag end of the trial, when counsel for the plaintiffs was addressing the learned single Judge in rejoinder, he sought an amendment of the plaint in these terms : -

"The plaintiffs have performed and have always been ready and willing to perform their part of the contract and are willing to do so."

The learned Judge refused the amendment because it was made at a very belated stage.

7. The learned Judge answered all the issues against the plaintiffs and dismissed the suit. The appeal is filed against his judgment and order.

8. What we must do first is to interpret the agreement. Upon its true interpretation will depend who was right on this aspect and also whether, as the 1st and 3rd defendants contend, the agreement was illegal.

9. Para 2 of the agreement provided that during the period of the strike in the plaintiffs' factory the plaintiffs' entitlements of steel from Rourkela would be made over to the 3rd defendants to be utilised for making drums for the lst defendants. When the strike in the plaintiffs' factory was over the plaintiffs were to be given the quantity of steel that had been so made over. This was to be done by the 3rd defendants making over to the plaintiffs 50% of the steel received by them from Rourkela from month to month. The letter dt. 23rd Nov., 1967 made it clear that the plaintiffs would be made over the 3rd defendants' steel receipts as aforesaid only until the plaintiffs had received the quantity of steel they had earlier made over to the 3rd defendants. Para 3 of the agreement dealt with the mode of payment. While utilising the plaintiffs' steel entitlements, the 3rd defendants were to pay for it by retiring the relative documents from the bank. While utilising the 3rd defendants' steel entitlements, the plaintiffs were to pay for it by retiring the relative documents from the bank. Clearly, the party obliged to retire the documents was to pay whatever was the invoice price. In our view, therefore, the plaintiffs were obliged to pay for the 3rd defendants' steel entitlements subsequent to 30th July, 1968 at the revised rate imposed by the Joint Plant Committee. The plaintiffs' interpretation of the agreement, which was and is to the contrary, is erroneous.

10. Mr. Bharucha, learned counsel for the plaintiffs, submitted that the plaintiffs had offered to pay the revised rate after August 1968, though under protest, and were, therefore, entitled to specific performance of the agreement as interpreted by the Court. He made reference in this behalf to Chitty on Contract, Vol. I, 25th Ed., para 1452. The subject there dealt with is "Tender under protest, or subject to valid condition" and it is stated that a tender of a sum of money "under protest", or where the debtor states that he considers the amount tendered to be all that is due, or where the debtor reserves the right to dispute the amount due is not a conditional tender and is therefore valid ; no condition has been imposed that the creditor must make an admission when accepting the money. The fact that the creditor disputes the amount due and refuses to receive the amount tendered by the debtor does not affect the validity of the tender or render it a conditional tender. Our attention was drawn by Mr. Bharucha to the judgment in Scott v. Uxbridge and Rickmansworth Railway Company, (1866) LR I CP 596. This was a case in which a judgment had been obtained and the creditor had given notice that he intended to take what we may broadly call execution proceedings. A shareholder of the debtor thereupon tendered under-protest the whole sum claimed and costs but the creditor refused. It was held that the tender was good and ought to have been accepted by the creditor. Our attention was also drawn to Greenwood v. Sutcliffe, (1892) 1 Ch 1. The Court of Appeal there held that though a conditional tender was not good, a tender under protest reserving the right of the debtor to dispute the amount due was a good tender if it did not impose any conditions on the creditor. This was a redemption suit in which the mortgagor had tendered to the mortgagee what was claimed. The tender was held to be good because it did not impose any condition on the mortgagee and the mortgagor was entitled to a true account for the purpose of showing that it was sufficient in amount. Neither of these two judgments is a case of specific performance and, therefore, does not directly assist the Court and the statement extracted from Chitty's Commentary is based upon them.

11. But a question of some importance undoubtedly arises. What happens when, in a hypothetical case, there is a genuine difference of opinion between the parties in regard to the interpretation of a contract and a suit for specific performance is necessitated?

12. Section 16 of the Specific Relief Act, 1963, provides :

"Specific performance of a contract cannot be enforced in favour of a person.................. (c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendants."

In the second Explanation to S.16 it is stated :

"For the purpose of cl.(c)- ............ (ii) the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction."

13. O.P. Aggarawala's Law of Specific Relief in India, 6th Edition, sets out why the said explanation was incorporated. The Law Commission in its 9th report had said this : -

"It has been held by the Privy Council that in a suit for specific performance, the plaintiff must show that all conditions precedent have been fulfilled and also allege (where the fact is traversed) and prove a continuous readiness and willingness to perform the contract on his part, from the date of the contract to the time of hearing. Though there is no express requirement to this effect in the Specific Relief Act, it has been held that failure to allege readiness and willingness will lead to a dismissal of the suit.................... There is, however, a conflict of judicial opinion as to the exact scope of the plaintiff's readiness and willingness required by the doctrine.

In England, it has been held that a plaintiff claiming specific performance, who insists on a wrong interpretation of the contract, does not lose his right to specific performance in accordance with its right interpretation where the defendant offers to perform the contract as rightly interpreted.

In India, the Calcutta and Nagpur High Courts have taken the view that the plaintiff must allege and prove his readiness to perform the contract as it really was and not as it was alleged by him to be. Thus, where a purchaser sought specific performance alleging that he was always ready and willing to pay Rs. 85 which, according to him, was the price fixed by the contract but the Court found that the price fixed by the contract was, in fact, Rs. 130, the suit for specific performance was dismissed. Similarly, it has been held that if the plaintiff insists on a condition which he is not entitled to under the contract as properly interpreted, his suit for specific performance must fall.

The Madras High Court has taken the view that even where the plaintiff alleges that the consideration payable by him was different from the real amount, there is a sufficient averment on the part of the plaintiff of his readiness and willingness to perform his part of the contract if he adds in the plaint that 'he has no objection to paying the defendant any sum that the Court should be pleased to fix'.

We are inclined to prefer the Madras view and recommend that the plaintiff should be entitled to specific performance if he avers performance or readiness and willingness to perform the contract according to its true construction."

14. In Arjun Mudaliar v. Lakshmi Ammal, AIR 1949 Mad 265, (the case referred to in the Law Commission's Report) a situation akin to that before us had arisen. The plaintiff and his deceased brother sold to the 2nd defendant certain properties by a registered sale deed. On that very date the 2nd defendant and his wife, the lst defendant, executed in favour of the vendors an agreement to reconvey the properties on the vendors' paying on any day a sum of Rs. 300/-, being the sale price, and interest thereon at the rate of Re. 1 hundred per month. The plaintiff instituted the suit claiming two alternate reliefs. He claimed that the two transactions amounted to a mortgage by conditional sale, on which footing he claimed redemption. In

the alternative, he claimed specific performance of the agreement to reconvey. The Division Bench of the Madras High Court noted that in a suit for specific performance the plaintiff had to allege that he was ready and willing to perform his part of the contract but it did not agree with the trial Judge that it was difficult to spell out such an averment from the plaint. The plaintiff had raised various pleas as regards the amount rightly payable but finally he had stated thus :-

"Though the plaintiff is entitled to claim larger reliefs from the defendants, the plaintiff has no objection to pay the defendants any sum that the Court should be pleased to fix."

The Court noted that the plaintiff was not asserting a right to perform the contract as was alleged to be by him. Though he put forward his own case, he made it clear that he was ready and willing to perform the terms of the contract in accordance with the decision of the Court. No authority had been cited before the Court to show that an averment that the plaintiff had no objection to perform the contract in accordance with the decision of the Court was not a sufficient averment of his readiness and willingness to perform his part of the contract.

15. At this stage it is convenient to refer to the judgment of a learned Single Judge of Calcutta High Court in Md. Ziaul Haque v. Calcutta Vyaper Pratisthan, AIR 1966 Cal 605. The learned Single Judge, it must be noted, was dealing with the provisions of the Specific Relief Act, 1877. Even so, he observed :

"Readiness and willingness to perform the agreement must be readiness and willingness to perform not as the plaintiff wished it nor in the way that the plaintiff evidenced it prior to the institution of the suit, nor in the way the plaintiff wanted to fashion it at the trial but whether the plaintiff was really ready and willing to perform the real agreement between the parties. The words "real agreement" would mean either the agreement that the plaintiff and the defendant had between the parties or it would mean the real agreement which the Court finds it to be real agreement. The question of readiness and willingness however would assume different aspects in relation to the real agreement. If at the trial it transpires that the real agreement is not what the plaintiff alleges and the readiness and willingness which the plaintiff displayed was in relation to a different agreement, the plaintiff would be within the mischief of the doctrine of readiness and willingness .............".

16. We may now note the judgment of the Gujarat High Court to which, reference was made by Mr. Bharucha. In Rajya Tulsibhai Patel v. Benar Enterprise, AIR 1988 Guj 42, it was held that the substantive provision of S.16(c) of the present Specific Relief Act does not insist upon a particular set of words to be used; the averments must in substance indicate the continuous readiness and willingness on the part of the person suing to perform his part of the contract. It is not imperative nor is it the requirement of law that the plaintiff must employ the same language or phraseology referred to in the forms or the statute.

17. Undoubtedly, in the ordinary suit for specific performance where the parties are ad idem about the interpretation of the agreement it is not necessary that the plaintiff should adopt any particular set of words to indicate that he was and is ready and willing to perform the agreement. What we are considering here, however, is not the ordinary suit for specific performance where the parties are ad idem about its interpretation. We are considering a case where parties are not ad idem. The Madras High Court judgment referred to by the Law Commission in its 9th Report was a specific performance suit in which the parties were not ad idem about the interpretation of the agreement. It was there held that the plaintiff had to aver in some way that he was ready and willing to perform the agreement howsoever the Court interpreted it. This view found favour with the Law Commission and it was upon the strength of this view that the second Explanation to S.16(c) was incorporated in the Act. It is, therefore, that S.16 requires that the plaintiff must aver performance of or readiness and willingness to perform the

contract according to its true construction. In a case where parties are not ad idem about the interpretation of an agreement and a suit to specifically perform it is filed, the plaintiff must aver readiness and willingness to perform the contract according to the interpretation the Court places upon it. If he does not, and the Court does not accept his interpretation of the agreement, his suit for specific performance must fail.

18. Mr. Bharucha submitted that in the present case the offer of the revised rate had been made, though under protest. In his submission, the amendment that was sought ought to have been allowed and the averments in the amendment ought, therefore, to have been read as meaning that the plaintiff was ready and willing to perform the agreement whichever way it was interpreted.

19. We accept Mr. Bharucha's submission that the proposed amendment ought not to have been disallowed only on the ground that it was made very belatedly but we cannot accept his submission as to the manner in which it should be read. Payment under protest only means that the payment is being made accompanied by a protest that it is not owing or is excessive and reserving the right to recover it. That the plaint recites that payment at the revised rate had been offered does not lead to the conclusion that the plaintiffs were ready and willing to pay at the revised rate if the Court held that to be their obligation under the agreement. The plaint seeks specific performance of the agreement only as it was interpreted by the plaintiffs. It seeks repayment of the amount paid by the plaintiffs to the 3rd defendants allegedly in excess, i.e., the difference between the old rate and the revised rate. The averments in the amendment can be read, therefore, as referring only to the plaintiffs' readiness and willingness to carry out their obligations under the agreement as interpreted by them.

20. Regardless, therefore, of whether the tender of the revised rate under protest was good tender or not, the plaintiffs were not entitled to specific performance of what we have found to be the real agreement or, consequently, to compensation in lieu thereof or to the difference between the old and the revised rates.

21. It was the contention of the lst and the 3rd defendants that the agreement was, in any event, not enforceable because it was unlawful. Mr. Bharucha drew our attention to Cls.2A, 4, 5 and 7 of the Iron and Steel Control Order, 1956. Under Cl.4 no person shall acquire or agree to acquire any steel from any person in its possession except under the authority of and in accordance with the conditions contained in the documents therein mentioned issued by the Controller. Under Cl.5 no person may sell or otherwise dispose of or agree to sell or dispose of steel except in accordance with the conditions contained or incorporated in a special or general written order of the Controller. Under Cl.2A the Central Government is empowered to exempt steel from all or any of the provisions of this Order. Our attention was drawn by Mr. Bharucha to a notification dt. 29th April 1967 issued under Cl.2A exempting steel from the provisions contained, inter alia, in Cls.4 and 5. The notification, however, does not exempt steel from the operation of Cl.7 which provides that a person acquiring steel in accordance with the provisions of Cl.4 shall not use it otherwise than in accordance with the conditions contained or incorporated in the document which was the authority for its acquisition. Mr. Bharucha urged, rightly, that the 3rd defendants had not placed upon the record the document which was the authority for their acquisition of steel from Rourkela and that they had, therefore, failed to establish that delivery of such steel by them to the plaintiffs would be contrary to the provisions of the Iron and Steel Order.

22. Mr. Vyas, learned counsel for the 1st and 3rd defendants, drew our attention to a letter on record. It was dt. 21st/22nd July 1969 and was written by the plaintiffs to the lst defendants in connection with the agreement. It stated that under the terms of the allotment of steel to the plaintiffs, the steel had to be used in their factory and they were prohibited by law from transferring it to any other party. Mr. Vyas submitted that this letter was an admission by the plaintiffs

themselves that the agreement was contrary to law. He invited our attention in this behalf to two judgments of the Supreme Court. In Waman Shriniwas Kini v. Ratilal Bhagwandas and Co., AIR 1959 SC 689, the Supreme Court observed that the consequence of enforcement of the contract before them would be to enforce an illegality and an infraction of a statutory provision which could not be condoned by any conduct or agreement of the parties. In Smt. Surasaibalini Debi v. Bhanindra Mohan Majumdar, AIR 1965 SC 1364, the Court noted that in the case on hand there was a clear admission by the respondent of the facts on which illegality was sought to be made out. The Court approved the observations of Lindley, L.J. in Scott v. Brown, (1892) 2 QB 724, that if the facts given in evidence clearly disclosed an illegality the Court was bound to take notice of this fact even if it was not pleaded by the defendants. In Abdula Saheb v. Guruvappa and Co., AIR 1944 Mad 387, a learned single Judge quoted Lord Mansfield and Scrutton, L.J. in passages that indicate the rationale of not enforcing an agreement which is unlawful. Lord Mansfield was quoted in a later judgment, (1940) 2 KB 590 as having said :-

"The objection that a contract is immoral or illegal as between plaintiff and defendant sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is over allowed; but it is founded on general principles of policy, which the defendant has the advantage of contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. The principle of public policy is this : ex dolo malo non oritur actio. No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa or the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis."

Scrutton, L.J. in re Mahmoud, (1921) 2 KB 716, said -

"In my view the Court is bound, once it knows that the contract is illegal, to take the objection and refuse to enforce the contract, whether its knowledge comes from the statement of the party who was guilty of the illegality, or whether its knowledge comes from outside sources. The Court does not sit to enforce illegal contracts. There is no question of estoppel; it is for the protection of the public that the Court refuses to enforce such a contract."

23. In the present case the letter of the plaintiffs dt. 21st/22nd July 1969 clearly admits that there was a prohibition in law upon the transfer of steel received from Rourkela under allotments to any other party. The agreement contemplates the transfer, first of steel received by the plaintiffs under allotments from Rourkela to the 3rd defendants and, thereafter, the transfer of steel received by the 3rd defendants under allotments from Rourkela to the plaintiffs. The agreement, clearly, is illegal and the Court will not assist in its enforcement.

24. It is now only necessary to deal with a claim to an amount of Rs. 17,289.09 which, were it not for the bar of limitation, would be payable to the plaintiffs. It is not in dispute that the suit was filed beyond the period of limitation but a letter dt. 3rd June 1969 is relied upon as an acknowledgment of liability. The letter is written by the 3rd defendants to the plaintiffs. It has two paragraphs. The first paragraph deals with a debit note which is unrelated to the amount in question. The second short paragraph deals with the debit note which relates to the amount in question and reads thus :-

"Regarding the other debit note of yours, we are writing separately."

There is no separately written letter upon record.

25. Mr. Bharucha submitted, however, that the letter establishment the jural relationship of debtor and creditor between the 3rd defendants and the plaintiffs. In this regard our attention was drawn by him to the Supreme Court judgment in Lakshmiratan Cotton Mills Co. Ltd. v. Aluminium Corporation of India Limited, AIR 1971 SC 1482. The Supreme Court noted -

"It need not, however, amount to a promise to pay, for an acknowledgment does not create a new right of action but merely extends the period of limitation. The statement need not indicate the exact nature of the specific character of the liability. The words used in the statement in question, however, must relate to a present subsisting liability and indicate the existence of jural relationship between the parties, such as, for instance, that of a debtor and a creditor, and the intention to admit such jural relationship. Such an intention need not be in express terms and can be inferred by implication from the nature of the admission and the surrounding circumstances. Generally speaking, a liberal construction of the statement in question should be given. That of course does not mean that where a statement is made without intending to admit the existence of jural relationship, such intention should be fastened on the person making the statement by an involved and farfetched reasoning."

26. It will be noted that the Supreme Court stressed that the statement in question must indicate the existence of a jural relationship such as that of debtor and creditor. We are unable to find any indication of the relationship of debtor and creditor in the second para. of the letter dt. 3rd June 1969 upon which the plaintiffs rely. In stating that the 3rd defendants would write separately to the plaintiffs in regard to the debit note they were not admitting the existence of a debt.

27. Mr. Bharucha relied on the same context upon the judgment of the Supreme Court in Shapoor Freedom Mazdo v. Durga Prosad Chamaria, AIR 1961 SC 1236. The observations therein are substantially similar to those which have been referred to above except that it is stated that the intention to admit a jural relationship need not be express but may be implied from the statement. In the present case the words used do not permit us to infer the jural relationship of debtor and creditor.

28. It was fairly admitted by Mr. Bharucha that there was no material on record upon the basis of which issues Nos. 8, 11 and 12 could be decided in favour of the plaintiffs. Issue No. 8 relates to a sum of Rs. 11,811.17. Issue No. 11 is in regard to the plaintiffs' allegation that they suffered losses by reason of being unable to honour third party commitments and make profits. Issue No. 12 relates to a claim of Rs. 10,00,000/- as damages over and above the claim of specific performance or monetary compensation in lieu thereof.

In the result, the appeal is dismissed with costs.

Mr. Bharucha's oral application for leave to appeal to the Supreme Court is refused.

Appeal Dismissed