A SRI TARSEM SINGH

v.

SRI SUKHMINDER SINGH

FEBRUARY 2, 1998

B

[S. SAGHIR AHMAD AND M. JAGANNADHA RAO, JJ.]

Contract Act, 1872 :

Section '20-Mistake

as to a matter of fact-Applicability-Conditions

C for-Mistake as to area of land agreed to be

sold-Seller intended to sell land

in terms of "bighas" and purchaser intended to purchase it in terms of

''Kanals' '-Held : It is a mistake a~ to a matter of fact essential to the

agreement .

•

D Sections 74 and 20-Parties under a mutual mistake with regard to a

matter

of fact essential to the agreement for sale-Agreement contained a

stipulation that earnest money would

be forfeited in case the purchaser did

not perform his part

of the contract by paying the balance amount of sale

consideration-Held: Agreement itself

is void under

S.20-Hence, forfeiture

clause

is also void-Therefore, it cannot be enforced for recovery of

E compensation under

S. 74 as that Section contemplates a valid agreement.

Section

20-Void agreement-Effect of-Held: When an agreement is

void, and its terms are void none of its terms can be enforced, except where

the clause constitutes a separate and independent agreement severable from

F the main agreement.

Sections

65 and 20-Earnest money-Forfeiture of-Parties under a

mutual mistake with regard

to a matter of fact essential to the agreement for

sale right from

its inception but realised the mistake at a much later stage­

Held: Amounts to agreement

"discovered to be void" within the meaning of

G S. 65-Hence, under such an agreement for sale the seller could not legally

forfeit the earnest money by invoking the forfeiture clause

in the agreement

in case the buyer did not perform his part of the contract by paying the

balance amount

of sale consideration.

Sections

13, 14 and

20-Mutual consent should be a free consent and

H

is the sine qua non for a valid agreement-A thing not understood in the same

456

'"I'.

)

(

<

T. SINGH v. S. SINGH 457

sense by a party as is understood by the other party-Agreement would be A

invalid under S.20 right fi'om its inception even if the discovery of this fact

is made at a much later stage.

Words and Phrases :

"Discovered to be void" and "becomes void"-Meaning of-Jn the B

context of S.65 of the Contract Act, 1872.

The petitioner-defendant, who owned agricultural land, entered into a

contract for sale

of that land with the respondent-plaintiff at a certain rate

based on the area

of the land. At the time of the execution of the agreement

,,;;C

the respondent pai4 earnest money to the plaintiff. Since petitioner did not

execute the sale deed

in favour of the respondent in terms of the agreement

although the respondent was ready and willing to perform his

·part of the

contract, the respondent filed the suit for Specific Performance against the

petitioner which was decreed by the trial court.

The decree was modified

in appeal by the Additional District Judge who D

held that the parties to the agreement, namely, the petitioner and the

respondent both suffered from a mistake

of fact as to the area of the land

which was proposed to be sold as also the price (sale consideration) whether

it was to be paid

at the rate of per

"bigha" or per "Kanai". The Lower

Appellate

Court also found that the respondent was not ready and willing to E

perform his part of the contract. Consequently, the decree for Specific

performance was not passed

but a decree for refund of the earnest money

was passed against the petitioner. This was upheld by the High Court. Hence

this

Special Leave Petition.

On behalf of the petitioner-defendant it was contended that the decree F

for refund of earnest money was erroneous since it. was stipulated in the

agreement that

in the event of the respondent not executing the sale deed by

paying the balance

amount of sale consideration the earnest money would

stand forfeited; that a mistake of fact with regard to the

'price' of the 'area'

would not be a matter essential to the agreement as the only dispute, in this G

case, was with regard to the price of land, whether the price to be paid for

the area calculated in terms

of 'bighas' or 'Kanals'; that as per

Section 73

and

74 of the Contract Act, 1872 the forfeiture clause in the. agreement was

liable to

be enforced; and that

Section 65 of the Act would apply when the

agreement was 'discovered to

be void' or where the 'contract becomes void'

and not to an agreement which was void from its inception.

H

458 SUPREME COURT REPORTS (1998] I S.C.R.

A Dismissing the petition, this Court

HELO: 1.1. Section 20 of the Contract Act, 1872 provides that an

agreement would be void if both the parties

to the agreement were under a

mistake as to a

matter of fact essential to the agreement. The mistake has

to be mutual

and in order that the agreement is treated as void, both the

B parties must be shown to be suffering from mistake of fact.

Unilateral

mistake is outside the scope of this Section. The other requirement is that

the mistake, apart from being mutual, should be in respect of a matter, which

is essential to the agreement. 1465-D-Ej

J .2. "Bigha" and "Kanai" are different units of measurement. In the

C Northern part of the country, the land is measured in some States either in

terms of "bighas" or in terms of "Kanals". Both convey different impressions

regarding area

of the land. While the defendant intended to sell the land in terms of" Kanals". the plaintiff intended to purchase it in terms of "bighas".

Therefore, the dispute was not with regard to the unit of measurement only.

D Since these units relate to the area of the land, it was really a dispute with

regard to the area of the land which was the subject matter of agreement for

sale, or, to put it differently,

how much area of the land was agreed to be sold,

was in dispute between the parties and it was with regard to the area

of the

land

that the parties were suffering from a mutual mistake. The area of the

land was as

much essential to the agreement as the price which, incidentally,

E was to be calculated on the basis of the area. Thus, the "mistake" with which

the

parties were suffering related to a matter essential to the agreement.

1465-G-H; 466-A-B]

2.1.

Section 74 of the Act contemplates a valid and binding agreement

between the parties. Since the stipulation for forfeiture of the earnest money

F is part of the contract, it is necessary for the enforcement of that stipulation,

that the contract between the parties is valid. lf the forfeiture clause is

contained in an agreement which is void on account of the fact that the

parties were not ad-idem and were suffering from mistake of fact

in respect

of a

matter which was essential to the contract, it cannot be enforced as the

G agreement

itself is void under Section 20 of the Contract Act. A void agreement

cannot be split up. None of the parties

to the agreement can be permitted to

seek enforcement of a

part only of the contract through a court of law. If the

agreement

is void, all its terms are void and none of the terms, except in

certain known exceptions, especially where the clause

is treated to constitute

a separate and independent agreement, severable from the main agreement,

H can be enforced separately and independently. 1466-H; 467-A-C]

T. SINGH v. S. SINGH 459

2.2. Since, in the instant case, it has been found as a fact by the courts A

below that the agreement in question was void from its inception as the

parties suffered from mutual mistake with regard to the area and price

of

the plots of land agreed to be sold, the forfeiture clause would, for that

reason, be also void and , therefore, the petitioner conld not

legally forfeit

the

amount and seek the e.nforcement of forfeiture clause, even by way of

defence, in a suit instituted for Specific Performance by the respondent. B

[467-C-D]

3.1. Section

65 of the

Act which is based on equitable doctrine, provides

for the restitution of any benefit received under a void agreement

or contract

and, therefore, mandates

that any

"person" which obviously would include

a party

to the agreement, who has received any advantage under an agreement

which

is discovered to be void or under a contract which becomes void, has

to restore such advantage

or to pay compensation for it, to the person from

whom

he received that advantage or benefit. [467-G]

3.2.

Mutual consent, which should also be a free consent, as defined

in Sections 13 and 14 of the Act, is the sine qua

11011 of a valid agreement.

One of the essential elements, which go to constitute a free consent is that

a thing, is understood in the same sense by a party as is understood by the

other party.

It may often be that the

pa1iies may realise, after having entered

c

D

into the agreement or after having signed the contract, that one of the

matters which was essential to the agreement, was not understood by them E

in the same sense and that both of them were carrying totally different

impressions

of that matter at the time

;)f entering into the agreement or

executing the document. Such realisation would have the effect of invalidating

the agreement

under Section

20 of the Act. On such realisation, it can be

legitimately said that the agreement was "discovered to be void". The words

"discovered to be void, therefore, comprehend a situation in which the parties p

were suffering from a mistake of fact from the very beginning but had not

realised,

at the time of entering into the agreement or signing of the document,

that they were suffering from any such mistake and had, therefore, acted

b(mafide on such agreement. 'fhe agreement in such a case would be void

from its inception, though discovered to

be so at a much later stage.

[468•A-D] G

3.3. The agreement being void for· any of the reasons set out in Sections

23 and 24, even the refund of the amount already paid under the agreement ·

may not be ordered. But, in the instant case, one party had received an

advantage under an agreement which was "discovered to by void" on account

of Section 20 of the Act. It is to this limited extent that on the principle H

460 SUPREME COURT REPORTS [ 1998) l S.C.R.

A contained in Section 65 of the Act, the petitioner having received the earnest

money from the

respondent in pursuance of that agreement, is bound to

refund the said amount to the respondent. A decree for refund

of this amount

was, therefore, rightly passed by the Lower Appellate

Court.

1469-E-G]

Thakurain Harnath Kaur v. Thakur Indar Bahadur Singh, AIR (1922)

B PC 403 and Ram Chandra Misra v. Ganesh Chandra Gangopadhya, AIR Cal

786, approved.

c

D

CIVIL APPELLATE JURISDICTION : Special Leave Petition (c) No.

4639 of 1998.

From the Judgment and Order dated 20.2.97 of the Punjab & Haryana

High Court in R.S.A. No. 2995 of 1994.

Wills Mathews and M.K. Michael for the Petitioner.

The Judgment

of the

Court was delivered by

S. SAGHrR AHMAD, J. Delay condoned.

The defendant

is the petitioner in this Special Leave

Petition before us.

E The petitioner, who owned 48 kanals 11 marlas of agricultural land in

village Panjetha, Tehsil and District Patiala, entered into a contract for sale of

that land with the respondent on 20.5.1988 @Rs. 24,000 per acre. At the time

of the execution of the agreement, an amount of Rs. 77,000/-was paid to the

petitioner as earnest money. Since .the petitioner did not execute the sale deed

in favour of the respondent in terms of the agreement although the respondent

F was ready and willing to perform his part of the contract, the latter, namely,

the respondent filed the suit for Specific Performance against the petitioner

which was decreed by the trial court. The decree was modified

in appeal by

the Additional District Judge who was

of the opinion that the parties to the

agreement, namely, the petitioner and respondent both suffered from a mistake

of fact as to the area of the land which was proposed to be sold as also the

G price (sale-consideration) whether it was to be paid at the rate of per

"Bigha"

or per "Kanai": The Lower Appellate Court also found that the respondent

was not ready and willing to perform his part

of the contract. Consequently,

the decree for Specific Perfonnance was not passed but a decree for refund

of the

eame!I! money of Rs. 77,000 was passed against the petitioner. This was

H upheld by the High Court.

;l,

I

(

'

T. SINGH v. S. SINGH [S. SAGHIR AHMAD, J .] 461

•

Learned counsel for the petitioner has contended that since the Lower A

-~

Appellate Court has recorded a finding that the respondent was not ready

and willing

to perform his part of the contract inasmuch as the balance of the

sale consideration was not offered by him to the petitioner, the Lower Appellate

Court

as also the High Court, which upheld the judgment of the Lower

Appellate Court, were

in error in passing a decree for return of the amount

B

of earnest money particularly as the parties had expressly stipulated in the

~

)-'

agreement for sale that if the sale deed was not obtained by the respondent

)

on payment of the balance amount of sale consideration, the amount of

earnest money, advanced by the respondent, shall stand forfeited.

In order to decide this question, we have to proceed on certain admitted

c

facts which are to the effect that there was an agreement for sale between the

parties concerning agricultural land measuring

48 kanals 11 marlas which was

proposed

to be sold at the rate of

RS. 24,000 per bigha or kanal and that an

»

amount of RS. 77,000 was paid as earnest money. The sale deed was to be

obtained on or before 15.10.1988 by offering the balance of the sale

consideration to the petitioner before the sub-Registrar, Patiala. There was a D

~ stipulation in the agreement that if the respondent failed to pay the balance

amount

of sale consideration, the earnest money shall stand forfeited.

During the pendency

of the appeal before the Additional District Judge,

I

respondent made certain amendments in the plaint which have been set out

E

in the judgment of the Lower Appellate Court as under:-

"(a) He corrected the area of the suit land as 48 bighas 11 biswas,

instead

of 48 kanals 11 biswas.

(b) In para 3

of the plaint, he corrected the figure of Rs. 1,56,

150 to

Rs. 2,35, 750 . F

'(

(c) He also added following para 3A to the amended plaint:-

~

~

"The land is mortgaged with Canara Bank by the defendant for

1

Rs. 20,000 . The defendant be directed to deposit the due amount

to the Canara Bank or the plaintiff be authorised to retain the

mortgage money." G

~,...

(d) He also added the following lines to para 9 of the plaint:-"

The plaintiff met Tarsem Singh in the month of September, 1988

and offered him the money with request to get the sale deed

registered in his favour but he refused to do so."

H

~·

!=

462 SUPREME COURT REPORTS [ 1998] I S.C.R.

A (e) He also added the following lines to para 19 of the plaint:-

"The value of the suit for the purpose of court fee and jurisdiction ~

is Rs. 2,40,000 on which a court fee stamps of Rs. 4,686 is fixed."

'

The Lower Appellate Court also recorded additional evidence. Thereafter,

~

B

the Lower Appellate Court proceeded to record the findings as under:-

"24. It is rightly submitted by the learned counsel ~or the appellant -{

-

that the case of the appellant is hoisted twice over with his own

patard.

If the total price of the land agreed to be sold was Rs. 2,35,750

as per amended plaint, then from the original

pl'lint and evidence of

c

the respondent in the trial court, it is clear that he was never ready

and willing to pay the full sale price

of Rs. 2,35,

750 to the appellant

for the land

in contract and that what he was ready and willing to pay

at

all material points of time before he filed application for a_mendment

of the plaint in this court, was only Rs. 1,56, 150 .

D

25. Of course, with the advantage of hind sight and as a clever but

clumsy after though Sukhminder Singh respondent PW! stated in this 1-

court on 30.4.1993 that when he attended the office of the Sub Registrar

't"

for execution of the sale deed on 30.4.1993 he was having Rs. one lac

in his possession. However it does not redeem his suit for specific

E

performance because for the reasons already stated, it is abundantly

clear that till before filing the application for amendment

of the plaint,

re

in this court, the respondent was only willing to pay the. total sale ·

price Rs. 1,56, 150 to the appellant and not the full sale consideration

of Rs. 2,35,750. Therefore in the peculiar facts and circumstances of

the case, it would be difficult to hold that he had throughout been

F

ready and willing to perform his part of the contract.

26. An other forensic cross which the respondent must bear

is that

}-

even from his original pleadings and the amended pleadings, it is clear

f

that' both the parties were under a mistake of fact in so far as the area . .

of l~nd agreed to be sold was concerned. As luck would have it, none

G

of them was sure whether it was 48 kanals 11 marlas, or 48 bighas 11

t

biswas. Therefore, the contract became void under section 22 of the

Contract Act. Besides this where the description, area and other

~ particulars of the property are not absolutely definite, precise, certain

and exact, no decree for specific performance

of sale can be

passed."

H

The Lower Appellate Court further proceeded to say as under:-

""

•

\_

-:( -+

1

--1

1

..

T. SINGH v_ S. SINGH [S. SAGHIR AHMAD. J.] 463

"On the analysis presented above it is absolutely clear that the parties A

were never ad-idem as to the exact area of the land agreed to be sold."

It was on account of the above findings that the decree for return of

the earnest money of Rs. 77,000 paid to the petitioner was passed particularly

as the petitioner was ·found to be under a legal obligation to return that

amount together with interest at the rate

of 6% per annum from the date of B

contract till the date of acutal refund.

The findings that the parties were suffering from a mistake

of fact as

to the area and the rate at which the property was agreed to be sold has been

upheld by the High Court which summarily dismissed the

Second Appeal filed

by the petitioner questioning the finding

of the courts below. ., C

What is the effect and impact of

"Mistake of Fact" on the agreement

in question may now be examined.

'Contract'

is a bilateral transaction between two or more than two

parties. Every contract has to pass through several stages beginning with the

D

stage of negotiation during which the parties discuss and negotiate proposals

and counter-proposals as also the consideration resulting finally in the

acceptance

of the proposal. The proposal when accepted gives rise to an

agreement. It is at this stage that the agreement is reduced into writing and

a formal document

is executed on which parties affix their signatures or thumb E

impression so as to be bound by the terms of the agreement set out in that

document.

Such an agreement has to be lawful as the definition of contract,

as set out in Section 2(h) provides that "an agreement enforceable by law is

a contract". Section 2(g) sets out that "an agreement not enforceable by law

is said to be void".

Before we proceed to consider what are lawful agreem~nts or what are

voidable or void contracts, we may point out that it

is not necessary under

law that every contract must be

in writing. There can be an equally binding

contract between the parties on the basis

of oral agreement unless there is

a law which requires the agreement to be in writing.

Section 10 of the Contract Act provides as under:-

"10. What agreements are contracts.-All agreements are co11tracts if

they are made by the free consent of parties competent to contract

for a lawful consideration and with a lawful object and are not hereby

F

G

expressly declared to be void. H

464

A

B

c

SUPREME COURT REPORTS [1998] 1 S.C.R.

Nothing herein contained shall affect any law in force in India and

not hereby expressly repealed, by which any contract

is required to b~ made in writing or in the presence of witnesses, or any law relating

to the registration

of

documents."

The essentials of contr:ict set out in Section 10 above are:-

(

1) Free consent of the parties

(2) Competence

of parties to contract

(3) Lawful consideration

( 4) Lawful object

,.

Con1petence to contract is set out in Section 11 which provides that

every person

is competent to contract who is of the age of majority and who

is of sound mind and is not disqualified from contracting by any law to which

D he is subject. Section 12 provides that a person will be treated to be of sound

mind if, at the time when he makes the contract, he

is capable of understanding

it and forming a rational judgment as to

its effect upon his interests.

E

F

G

"Consent" and "Free Consent'', with which we are really concerned in

this appeal, are defined in Section 13 and 14 of the Act as under:-

"13. Two or more persons are said to consent when they agree upon

the same thing in the same sense."

"14. Consent is said to be free when it is not caused by-

(I) coercion, as defined in section 15, or

(2) undue influence, as defined in section 16, or

(3) fraud, as defined in section 17, or

(4) misrepresentation, as defined in section 18, or

(5) mistake subject to the provisions of sections 20, 21 and 22.

Consent

is said to be so caused when it would not have been given

........_

but for' the existence of such coercion, undue influence, fraud,

misrepresentation or mistake."

H Section 15, 16, 17 and 18 define "Coercion", "undue Influence", "Fraud"

T. SINGH v. S. SINGH [S. SAGHIR AHMAD, J.] 465

and "Misrepresentation".

Section 19 provides that when consent to an agreement is caused by

coercion, fraud

or misrepresentation, such agreement is voidable at the option

of the

party whose consent was so caused. So also is the agreement to which

consent

of a party was obtained by undue influence.

Section

20 of the Act lays down 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

A

B

is void. C

Explanation.-An erroneous

op1111on as to the value of the thing

which forms the subject-matter

of the agreement, is not to be deemed

a mistake as to a matter

of

fact."

This. Section provides that an agreement would be void if both the D

parties to the agreement were under a mistake as to a matter of fact essential

to the agreement. The mistake has to be mutual and

in order that the agreement

be treated

as void, both the parties must be shown to be suffering from

mistake

of fact.

Unilateral mistake is outside the scope of this Section.

The other requirement

is that the mistake, apart from being mutual, E

should be in respect of a matter which is essential to the agreement.

Learned counsel for the petitioner contended that a mistake

of fact with

regard to the

"price" or the "area" would not be a matter essential to the

agreement, at least

in the instant case, as the only dispute between the parties

was with regard to the price

of the land, whether the price to be paid for the

area calculated in terms

of

"bighas" or "Kanals".

"Bigha" and "Kanai" are different units of measurement. In the Northern

F

part of the country, the land is measured in some states either in terms of

"bighas" or in terms of"kanals". Both convey different impressions regarding G

area of the land. The finding of the Lower Appellate Court is to the effect that

the parties were not ad-idem with respect to the unit

of measurement. While

the defendant intended to sell it

in terms of

"kanals", the plai~tiff intended

to purchase

it in terms

of"bighas". Therefore, the dispute was not with regard

to the unit

of measurement only.

Since these units 1elate to the area of the

land, it was really a dispute with regard to the area

of the land which was the H

466 SUPREME COURT REPORTS [1998) l S.C.R.

A subject niatter of agreement for sale, or, to put it differently, how much area

-1'-

of the land was agreed to be sold, was in dispute between the parties and

it was with regard to the area of the land that the parties were suffering from

a mutual mistake. The area of the land was as much essential to the agreement

as the price which, incidentally, was to be calculated on the basis of the area.

B

The contention of the learned counsel that the "mistake" with which the

parties

were suffering, did not relate to a matter essential to the agreement

-I

cannot be accepted.

Learned counsel

for the petitioner has contended that Lower Appellate

Court or the High Court were not justified in passing a decree for the refund

c

of Rs. 77,000 which was paid as earnest money to the petitioner as there was

a specific stipulation in the agreement for sale ,hat if the respondent did not

perfonn his part of

the contract and did not obtain the sale deed after paying

the balance amount of sale consideration within the time specified in the

agreement, the earnest money would stand forfeited. It is contended that

since

the respondent did not offer the balance amount of sale consideration

D and did not obtain the sale deed in tenns of the agreement, the amount of

earnest money was rightly forfeited and a decree for its refund could not have

been legally passed.

Learned counsel for the petitioner has invited our attention to Section

E

73 and 74 of the Contract Act which, in our opinion, are of no aid to the

petitioner.

Section 73 stipulates a valid and binding contract between the parties.

It deals with one of the remedies available for the breach of contract. It is

provided that where a party sustains a loss on account of breach of contract,

F

he is entitled to receive, from the party who has broken the contract,

compensation

for such loss or damage.

-~

/

Under Section 74 of the Act, however, the parties to the agreement

stipulate ~ither a particular amount which is to be paid in case of breach or

an amount may be mentioned to be paid by way of penalty. The party

G

complaining of the breach is entitled, whether or not actual damage or loss

is proved to have been caused, to receive from the party who has committed

the breach of contract, compensation not exceeding the amount mentioned in +

•

the agreement or the penalty stipulated therein. But this Section als.o

contemplates a valid and binding agreement between the parties. Since the

stipulation for forfeiture of the earnest money is part of the contract, it is

H necessary for the enforcement of that stipulation, that the contract between

t·

...

T. SINGH v. S. SINGH [S. SAGHIR AHMAD, J.] 467

the parties

is valid. If the forfeiture clause is contained in an agreement which A

is void on account of the fact that the parties were not ad-idem and were

suffering from mistake

of fact in respect of a matter which was essential to

the contract,

it cannot be enforced as the agreement itself is void under

Section 20 of the Contract Act. A void agreement cannot be split up. None

of the parties to the agreement can be permitted to seek enforcement of a part B

only of the contract through a court of law. If the agreement is void, all its

terms are void and none

of the terms, except in certain known exceptions,

specially where the clause

is treated to constitute a separate and independent

agreement, severable from the main agreement, can be enforced separately

and independently.

Since, in the instant case, it has been found as a fact by the courts

below that the agreement in question was void from its inception

as the

parties suffered from mutual mistake with regard to the area and price

of the

plots

of land agreed to be sold, the forfeiture clause would, for that reason,

be also void and, therefore, the petitioner could not legally forfeit the amount

c

and seek the enforcement of forfeiture clause, even by way of defence, in a D

/ suit instituted for Specific Performance by the respondent.

1

'y

We may also refer to Section 65 of the Contract Act with, minus the

illustrations,

is as follows:-

"65. Obligation of person who has received advantage under void E

agreement or contract that becomes void.-When an agreement is

discovered to be void, or when a contract becomes void, any person

who has received any advantage under such agreement or contract

is bound to restore it, or to make compensation for it, to the person

from whom

he received

it."

This Section, which is based on equitable doctrine, provides for the

restitution

of any benefit received under a void agreement or contract and,

therefore, mandates that any

"person" which obviously would include a party

to the agreement, who has received any advantage under an agreement which

F

is discovered to be void or under a contract which becomes void, has to G

restore such advantage or to pay compensation for it, to the person from

whom he received that advantage or benefit.

Learned counsel for the appellant has contended that

Section 65 would

apply to a situation where the agreement

is

"discovered to be void" or where

the contract "becomes void" and not to an agreement which is void from its H

468 SUPREME COURT REPORTS [ 1998) 1 S.C.R.

A inception. This argument cannot be allowed to prevail.

Mutual consent, which should also be a free consent, as defined

in

Section 13 and 14 of the Act, is the sine qua non of a valid agreement.

One

of the essential elements which go to constitute a free consent is that a thing

is understood in the same sense by a party as is understood by the other

B party. It may often be that the parties may realise, after having entered into

the agreement or after having signed the contract, that one

of the matters

which was essential to the agreement, was not understood by them

in the

same

se:nse and that both of them were carrying totally different impressions

of that matter dt the time of entering into the agreement or executing the

C document. Such realisation would have the effect of invalidating the agreement

under Section 20 of the Act. On such realisation, it can be legitimately said

that the agreement was "discovered to be void". The words "discovered to

be void'', therefore, comprehend a situation in which the parties were suffering

from a mistake

of fact from the very beginning but had not realised, at the

time

of entering into the agreement or signing of the document, that they were

D suffering from any such mistake and had, therefore, acted bona fide

on such

agreement. The agreement in such a case would be void from its inception,

though discovered to be so at a much later stage.

The Privy Council in Thakurain Harnath Kuar v. Thakur Jndar Bahadur

Singh, AIR (1922) PC 403 = ILR (1922) 45 All. 179 = 27 CWN 949 = 44 MLJ

E 489, while considering the provisions of Section 65 held that:-

"The section deals with (a) agreements and (b) contracts. The

distinction between them is apparent from section 2. By clause ( e)

every promise and every set

of promises forming the consideration for

p each other is an agreement, and by clause (h) an agreement enforceable by law is a contract. Section 65, therefore, deals with (a) agreements

enforceable by law and (b) with agreements not so enforceable. By

clause (g)

an agreement not enforceable by law is said to be void.

An agreement, therefore, discovered to be void is one discovered

G to be not enforceable by law and, on the language of the section

would include

an agreement that was void in that sense from its

inception

as distinct from a contract that becomes void."

This case before the Privy Council also related to sale of certain villages

for which some money had been paid in advance. The sale was found to be

H inoperative as there was a misapprehension as to the rights of the transferor

/.

'· I

T. SINGH v. S. SINGH [S. SAGHIR AHMAD, J.] 469

in the villages which he purported to sell and that the true nature of those A

rights was discovered much later. In this background, the Privy Council held

the agreement to have been "discovered to be void". The Privy Council,

therefore, passed a decree for compensation

in favour of the vendee and in

assessing that compensation, the sum of money, which was advanced, was

included

in the amount of compensation decreed with 6% interest payable B

from the date of suit.

To the same effect is an old decision of the Calcutta High Court in Ram

Chandra Misra and others v. Ganesh Chandra Gangopadhya and others.

AIR (1917) Calcutta 786, in which it was held that an agreement entered into

under a mistake and misapprehension

as to the relative and respective rights C

of the parties thereto is liable to be set aside as having proceeded upon a

common mistake.

In this case, there was an agreement for lease of the mo go Ii

brahmatter rights of the defendants in certain plots of land. Both the parties

were under the impression that the brahmatter rights carried with them the

mineral rights.

It was subsequently discovered that brahmatter rights did not

carry mineral rights. The High Court held that the agreement became void

D

under

Section 20 of the Contract Act as soon as the mistake was discovered

and, therefore, the plaintiffs were entitled to refund

of money advanced under

a contract which was subsequently discovered to

be void.

We may point out that there are many facets of this question, as for

example (and there are many more examples), the agreement being void for

E

any of the reasons set out in

Section 23 and 24, in which case even the refund

of the amount already paid under that agreement may not be ordered. But,

as pointed out above, we are dealing only with a matter in which one party

had received

an advantage under an agreement which was

"discovered to be

void" on account of Section 20 of the Act. It is to this limited extent that we F

say that, on the principle contained in Section 65 of the Act, the petitioner

having received

Rs.

77,000 as earnest money from the respondent in pursuance

of that agreement, is bound to refund the said amount to the respondent. A

decree for refund

of this amount was, therefore, rightly passed by the Lower

Appellate Court.

For the reasons stated above, we see

no force in this

Special Leave

G

-~ Petition which is dismissed.

v.s.s. Petition dismissed.