TMI Blog1982 (3) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 lakhs to the Corporation for setting up an industry in tools etc. The amount of loan was subsequently reduced to ₹ 4,11,000/-. Going ahead with his project the Petitioner applied on 1-4-1976 for a piece of land to set up his manufacturing unit to the U.P. State Industrial Development Corporation at Amausi. The land was allotted to him on 8-4-1976. The Corporation sanctioned a loan of ₹ 3,70.000/- against the demand of ₹ 4,11,000/- and communicated the sanction to the Petitioner by letter dated 27-9-1976. The terms and conditions of the loan were mentioned in Annexures Nos. 1 and 2 attached to that letter. The purpose for which the amount of loan was to be utilised was as follows: (i) (a) For Land direct payment to U. P. S.I.D.C and balances to be paid by the party ₹ 46,000/- (b) For construction of factory Building ₹ 54,000/- (c) For purchase of plant and machinery ₹ 2,40,000/- (d) For other expenses, viz. interest during construction period and mortgage expenses ₹ 30,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporation for a sum of ₹ 3,70,000/- and executed an irrevocable power of attorney in favour of the Corporation. The Petitioner invested the amount of ₹ 900,00/- for setting up the project. The progress of the project was found to be satisfactory and a certificate in that behalf was given by the Corporation. A building was constructed to install the machinery. Further money was then needed by the Petitioner for the purchase of the plant and machinery etc. He, therefore, asked for disbursement of ₹ 1,13,000/- out of the sanctioned loan amount for purchasing plant and machinery vide his letter dated 21-3-1978 (Annexure No. 4). He also demanded a sum of ₹ 46,000/- for making payment towards the cost of the land. The Petitioner also had an interview with the Corporation authorities to secure the, release of the amount, The Corporation, however, released a sum of ₹ 2,500/-. The Corporation had also remitted a sum of ₹ 46,200/- on 31-3-1978 on behalf of the Petitioner to the U.P. State Industrial Development Corporation against the cost of the land. But it did not disburse the balance amount demanded by the Petitioner alleging that he had not cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution. He, therefore again requested the Corporation to release the balance amount ₹ 2,31,500/- and informed it that on failure to do so the Petitioner would be absolved of his liabilities under the agreement. The Corporation sent a letter dated 16-7-1978 which was replied to by the Petitioner on 24-7-1978, in which the Petitioner inter alia stated that the agreement dated 11-1-1978 was no more operative and all the documents executed in pursuance of the said agreement had become void for want of consideration. Further correspondence ensued between the parties. The Corporation wrote a letter on T4-8-1978 reiterating its stand and the Petitioner wrote a letter on 4-9-1978. It may be mentioned here that the first instalment of the principal amount of loan was due to be paid in July, 1979. The Corporation, however, by its letter dated 16-6-1979 recalled the entire loan advanced to the Petitioner with interest. That letter was served on the Petitioner on 8-8-1979. The amount claimed in that letter was ₹ 1,62,382.31. The Petitioner sent a notice on 26-6-1979 to the Corporation claiming an amount, of ₹ 1,89,710/- a- compensation and stated that after adjustment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice mentioned only an average margin of 8.1%, The Corporation disputed the calculations made by the Petitioner in that behalf. The Petitioner was sanctioned a loan of ₹ 3,70,000/- and the total cost of project came to ₹ 4,35,000/-. Thus according to the Corporation the margin of security came to about 15%, In this connection the Corporation pointed out that the Petitioner had ignored a sum of ₹ 30,000/- while calculating the margin and if that amount was taken into account while calculating the margin it came to about 15%. So according to the Corporation further advancement of loan could not be made as the Petitioner had not, created sufficient assets which was a condition precedent vide Clause 23, The Corporation has also averred in the counter-affidavit that, the recall notice was issued on 16-6-1980 when the Petitioner refused to clear overdue interest and even did not allow the Technical Officer of the Corporation to inspect his unit by taking the plea that the U.P. Financial Corporation had violated the terms of agreement. The Corporation also denied that, the Petitioner has suffered any losses. It, however, admitted that a recovery certificate was issued on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtionate amount from his own resources to-r wards the completion of the scheme. The Corporation assured the Petitioner that if he created further assets further loan amount would be disbursed without any delay. On the other hand the Petitioner contended that he was entitled to the release of further amount of loan and as the Corporation had failed to do so it had committed breach of the agreement. The Corporation asked for payment of overdue interest which the Petitioner had not paid. Ultimately the Corporation exercised its right to recall the entire amount of loan with interest and gave a notice in that behalf saying that the Petitioner had committed breach of the terms of agreement. So, each party alleged that the other had committed breach of the agreement. Significantly, by letter dated 24-7-1978 the Petitioner informed the Corporation that as the Corporation had committed breach of the agreement, the agreement of 11-1-1978 was no more operative and the Petitioner was absolved of all his liabilities under the agreement and he was also entitled to be compensated for the losses and damages which he had suffered due to the said breach. He also asked for the return of his title de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(a) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot, be transferred.... 8. Further the Supreme Court said that this has always been the law in England and as far back as 1858, it can be found stated by Wightman, J. in Jones y, Thompson ((1858) 27 LJQB 234: 120 ER 430) in the following terms: Ex parte Charles and several other decide that the amount of a verdict in an action for unliquidated damages is not a debt, till judgment has been signed. In that case it was held that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the Plaintiff till the judgment is actually delivered. In O'Driscoll v. Manchester Insurances Committee ((1915) 3 KB 499: 85 LJKB 83) Swinten Eady, L.J., said while considering the claim for unliquidated damages: ... In such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation awarded by the court. If there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. 13. The situations in which one of the parties to a contract, may rightfully rescind and put an end to it are dealt with Under Sections 39, 53, 54, 55 and 64 of the Contract Act. Section 39 states that when a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. The rightful rescinding of a contract involving reciprocal promises has been dealt with under Section 53 of the Act which provides that when a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the other party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting party to make restoration of the benefit which he has hitherto received or enjoyed under the contract. The peculiarity about this claim is that it is not after all a claim of compensation. It is obviously that type of claim which can better be called as claim for restoration or restitution. The aim is to bring the parties to a position as if there had been no contract. In its aim and intent, the claim for compensation is quite the reverse of a claim of restitution. A claim for compensation aims not at bringing the parties in a position as if no contract had been entered into but in a position as if the contract had been performed. The one restores the benefit, the other recoups the loss. The person who lawfully rescinds a contract is, on the one hand, under a legal liability to restore the benefit, if any received by him under the contract to the person from whom he has received it, and gives him at the same time and on the other hand, a legal right to claim compensation for the damage, if any, he has suffered through the non-fulfilment of the contract (see Law of Claims' by Dr. R.G. Chaturvedi, pages 454 and 455). The kind of refusal contemplated in Section 39 of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured by creating an equitable mortgage of land and building by deposit of title deeds and also by hypothecation of movable assets. The Petitioner also executed a promissory note. He agreed that if the said loan was advanced he shall repay the same to the Corporation at the place where the Head Office of the Corporation is situated: for the time being by 21 half yearly instalments the first being of ₹ 12,000/- subsequent 16 half yearly instalments of ₹ 20,000/- each. He also agreed that whatever portion of the said loan was advanced it would be repaid by instalments as aforesaid. The first instalment was to fall due for repayment on the second anniversary date of the advance of the first instalment of the loan by the Corporation. The first instalment of loan was advanced by the Corporation on 23-7-1977. So, the first instalment of repayment of the loan by the Petitioner to the Corporation was to fall due on 23-7-1979 and every subsequent instalment was to be paid half yearly, The Petitioner had also agreed In clear terms that the repayment will lie made together with interest on the said principal sum or the balance thereof remaining unpaid for the time being at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther stipulation in the agreement was that over and above the other rights and powers of the Corporation conferred on it by the said Section 30 of the State Financial Corporation Act and without, prejudice to such rights and powers the Corporation shall have the right by notice in writing to require the borrower forthwith to discharge in full the liabilities to the Corporation in the following cases and in any of such cases the whole of the amount then remaining payable to the Corporation shall, at the option of the Corporation become payable to the Corporation as if the time for the payments' thereof had expired, namely, (a) if default shall be made by the borrower for a period exceeding three months in the payment of any instalment of the said principal sum, or (b) if interest amounting to at least ₹ 500/- (Rupees five hundred) shall be in arrears and, unpaid for three months after becoming due. Clause 14 of the agreement laid down that all dues in connection with the loan advanced by the Corporation or advanced by or on behalf of the State Government or Central Government shall at the option of the Corporation be also realisable as arrears of land revenue. It appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal ₹ 1,38,500.00 Interest ₹ 52,771.77 10% Collection Charges ₹ 19,127.17 Total 2,10,398.94 The tahsildar has however, sent the impugned notice (Annexure No. 14) dated 3-9-1980 to the petitioner showing the following Arrears ₹ 2,10,398.94 Collection charges ₹ 21,039.89 Notice ₹ 2.00 Total Rs.2,31,440.83 Obviously the amount mentioned in the recovery certificate sent by the Corporation to the District Magistrate (vide para 32 of the petition) for ₹ 2,10,398.94 included 10% collection charges amounting to ₹ 19,127.17. However, the notice (Annexure 14) further claims a sum of ₹ 21,039.89 as collection charges. The Petitioner has contended that there is no provision either in the deed of agreement executed by him or any law entitling the Respondents or any of them to claim any whimsical sum as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the total sum due for recovery as may be realized by the sale at the rate of 3 naya paise per rupee of the sale proceeds. So, the charge can be levied only when the sale of the property actually takes place. The amount of ₹ 19,127.17 as collection charges included in the sum of ₹ 2,10,398.94 as also the amount of ₹ 21,039.89 towards the collection charges mentioned in the notice (Annexure 14) could not, therefore, be legally claimed from the Petitioner. The impugned notice (Annexure 14) is bad in law and is, therefore, liable to be quashed. 17. The Petitioner has, however, asked for the release of his title deeds on the ground that nothing is payable by him to the Corporation. Those title deeds were given to the Corporation by the Petitioner creating an equitable mortgage as security for the loan advanced; hence so long as the mortgage is not redeemed title deeds cannot be released. The Petitioner, however, contends that nothing is payable by him to the Corporation. He admits to have taken loan but he contends that as a result of the breach of contract committed by the Corporation he has suffered damages to the tune of ₹ 1,89,710/-, hence after adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... breach become entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages (see Union of India v. Raman Iron Foundry AIR 1974 SC 1265 (supra). The Petitioner cannot in these circumstances ask for the release of his title deeds in the present proceedings. If the Corporation has committed breach of the contract he gets entitled to file a suit for damages He is also entitled to redeem the mortgage by sale of his properties or otherwise in accordance with law and if the Petitioner proceeds to sell his property the Corporation would be under a legal obligation to extend all co-operation in the matter because the sale would always be subject to mortgage and encumbrances. 18. Now, assuming that the Petitioner has committed breach of contract by not, observing the terms of the contract and paying the installment of interest at the stipulated time, the Corporation would be entitled to ask for the payment of the entire amount of the loan with interest. Section 30 of the State Financial Corporations Act, provides that notwithstanding anything in any agreement to the contrary, the Financial Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management, of the industrial concern, or for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended. Obviously without the permission of the Board the Petitioner cannot sell the property or any part thereof to any third person. The Board cannot, however, in our view, refuse to grant permission, without reasonable and proper excuse, to the Petitioner to sell the property with a view to redeem the mortgage. 19. On the rescission of the contract the amount advanced by the Corporation together with interest thereon till the date of the rescission of the contract became repayable to the Corporation as a sum certain . The Corporation in its notice dated 6th Aug. 1978 had asked for payment of ₹ 1,62,382.31 together with interest on to the date of payment. The Petitioner has admittedly not repaid the amount. Hence he would, in our view, be liable to pay simple interest at the Reserve Bards of India rate as was prevailing at the time the loan was advanced, on the said sum of ₹ 1,62.382.31 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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