Raja Dhruv Dev Chand v Raja Harmohinder Singh (1968)

Section 56 speaks of agreements and contracts. This case decides what happens when the transaction in question is not merely executory but has passed into a completed transfer — here a lease of land, which vests an estate in the lessee. The Court's answer is that s. 56 has no application to a completed transfer; it applies at most to the covenants contained in a lease, and even then the striking down of a covenant does not undo the transfer of the interest.

It is therefore the leading Indian authority for the proposition that the doctrine of frustration does not apply to leases, and the case that overrules the contrary view. It is also a convenient vehicle for two further rules that examiners like: that s. 56 is exhaustive of the doctrine of frustration in India, and that a lessee's remedy where the property is destroyed lies under s. 108(e) of the Transfer of Property Act and not under the Contract Act.

The appellant obtained from the Court of Wards, Dada Siba Estate, a lease of five squares of land in Tahsil Okara, District Montgomery, in the undivided Punjab, for the Kharif season 1947 and the Rabi season 1948. Following the partition of India in July 1947 and the allotment of that territory to Pakistan, the appellant migrated to India.

He sued the Court of Wards in the Court of the Subordinate Judge, Kangra at Dharamsala, for refund of the rent he had paid, claiming that the consideration for the lease had failed because the covenants of the lease had become impossible of performance as a result of communal riots in the District of Montgomery and the inability of non-Muslims to continue to reside in that area.

The suit was decreed. The High Court of Punjab reversed, holding that the doctrine of frustration of contract did not apply to leases of immovable property and that in any event no case of frustration had been established on the facts. The appellant appealed to the Supreme Court on a certificate granted by the High Court; Raja Harmohinder Singh and Kanwar Rajinder Singh were substituted for the Court of Wards as respondents.

Certain findings of the High Court were not challenged, and they narrow the case considerably: that after obtaining possession the appellant carried on agricultural operations for the Kharif cultivation and partly enjoyed benefit therefrom; that the right to the demised land continued to remain vested in him even after he migrated to India; that the lands demised were neither destroyed nor had become permanently unfit for the purpose of agriculture; and that there was no agreement, express or implied, that the rent was payable only if he was able personally to attend to or supervise the agricultural operations.

Shah J began with the English background. The early cases laid down the rule of "absolute contract", that a person who bound himself absolutely to do a thing could not escape liability for damages by proving that as events turned out performance was futile or even impossible, as in Paradine v Jane; that rule was later mitigated, as in Denny, Mott and Dickson Ltd. v James B. Fraser & Co. Ltd., by an exception discharging the parties where further fulfilment is brought to an abrupt stop by some irresistible and extraneous cause for which neither party is responsible.

In India, the Court said, the Contract Act has turned that limited common-law exception into a positive general rule in s. 56. Under s. 56, where an event which could not reasonably have been in the contemplation of the parties when the contract was made renders performance impossible or unlawful, the contract is rendered void and the parties are excused from performance of their respective obligations: as where performance is rendered invalid by the intervention of law, or the subject matter assumed by the parties to continue to exist is destroyed, or a state of things assumed to be the foundation of the contract fails or does not happen, or performance is to be rendered personally and the person dies or is disabled.

Satyabrata Ghose v Mugneeram Bangur & Co. was relied on for the exhaustiveness of the section, Mukherjea J having there observed that the doctrine of frustration "is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of section 56 of the Indian Contract Act", and that "to the extent that the Indian Contract Act deals with a particular subject, it is exhaustive upon the same", so that it is not permissible to import the principles of English law dehors those statutory provisions.

The Court therefore declined the invitation to look at American and Scottish decisions: "Section 56 of the Contract Act lays down a positive rule relating to frustration of contracts and the Courts cannot travel outside the terms of that section." The contrary view of the East Punjab High Court in Parshotam Das Shankar Das v Municipal Committee, Batala, that s. 56 is not exhaustive of the law relating to frustration in India, was held not to be good law to that extent.

The decisive step is the characterisation of the relationship. Counsel argued that the relation between the parties rested in contract. The Court disagreed. It was true that the Court of Wards had accepted the appellant's tender and granted him a lease on agreed terms, "But the rights of the parties did not after the lease was granted rest in contract."

Nor could s. 4 of the Transfer of Property Act be used to import the Contract Act into the transfer. That section makes the chapters and sections of the Transfer of Property Act which relate to contracts part of the Indian Contract Act, but "That section however does not enact and cannot be read as enacting that the provisions of the Contract Act are to be read into the Transfer of Property Act."

The principle follows in the sentence that carries the case: "There is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer."

Applied to s. 56 itself: "By its express terms s. 56 of the Contract Act does not apply to cases in which there is a completed transfer." The second paragraph of the section, the only one material to such cases, "has a limited application to covenants under a lease." A covenant under a lease to do an act which afterwards becomes impossible or unlawful becomes void when the act becomes impossible or unlawful — "But on that account the transfer of property resulting from the lease granted by the lessor to the lessee is not declared void."

The agreement of lease was not said to be void or voidable, nor was it the appellant's case that the lease had been determined in any manner known to law. He had obtained possession, and was thereafter unable to continue in effective possession because of circumstances beyond his control. Even granting that the parties had not contemplated riots rendering cultivation unsafe or the looting of his crops, "there was no covenant in the lease that in the event of the appellant being unable to remain in possession and to cultivate the land and to collect the crops, he will not be liable to pay the rent." His inability to cultivate or to collect the crops on account of widespread riots could not, in the events that transpired, clothe him with a right to claim refund of the rent paid.

The Court then surveyed the Indian authorities, which have generally taken the view that s. 56 is not applicable where the rights and obligations of the parties arise under a transfer of property under a lease: a Calcutta decision where requisition by the Land Acquisition Collector was held not so fundamental as to strike at the root of the relationship of landlord and tenant; a Bombay decision holding that monthly tenants whose premises were requisitioned remained tenants as before, the estate vested by the lease not being extinguished by a requisition of a temporary nature; a Madras decision refusing remission to the lessee of a shandy tope struck by cyclones, there being no provision for remission on account of losses; and another Madras decision allowing the lessor to recover the stipulated rent notwithstanding an Ordinance restricting rents.

The case chiefly relied on by the appellant, a Punjab decision concerning a lease of agricultural land executed on 8 January 1947 in an area that fell to West Pakistan, was distinguished on its facts — possession had never been delivered, so the tenant was plainly entitled to a refund — and its wider observations were disapproved. The Court refused to accept either the statement that the broad principle of frustration of contract applies to leases, or the statement that "According to Indian law, sales of land as also leases are contracts".

The appeal was dismissed with costs. Under a lease of land there is a transfer of a right to enjoy the land. Where a material part of the property is wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease may, at the option of the lessee, be avoided; that rule is incorporated in s. 108(e) of the Transfer of Property Act, applies to leases of land governed by that Act, and its principle applies to agricultural leases and to leases in areas to which the Act has not been extended. But "Where the property leased is not destroyed or substantially and permanently unfit, the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is let to him."