# [1967] 2 S.C.R. 312

- **Citation:** [1967] 2 S.C.R. 312
- **Court:** Supreme Court of India
- **Decided:** 1967-01-03
- **Bench:** J.C. Shah, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1967-2-s-c-r-312-3952
- **Pages:** 6

## Headnote

Indian Limitation Act (9 of 1908), Arts. 83 and 116-Sale of mrn111bered prop.erty--Cov~nant by purchas.er to pay uff e11cu111~rancc-:l;'~dl
ure by purchaser-Loss to Vf'11dor-Su1t ro recover /oss--Pcnod of lu111tation.
The respondents executed a simple mortgage for a sum of Rs. 12,000
in 1914. Later .. they wld half of the mortgaged property to the appellants. Out of the consideration a sum required to pay the amount (principal and interest) due to the mortgagees. was left with the appcil:rnL<.
The oppellants took possession of the property "onveyed, but did not
make any payment to the mortgagees.
The mortgagees brought a suit
for the recovery of the amount due to them and in 1937, a final decree
was passed against the respondents. The respondents then applied under
the U.P. Encumbered Estates Act, and the liability was apportioncJ between the appellants and respondents.
In 1943. the Collector took proceed!ngs under that . .\ct for the liquid~1ti0n of the t.lcbt anJ di'reclct.I the
respondents to execute a self-liquidating inoneagc uf three-fourths of their
half-share for a sum of about Rs. 20.8000.
The mortgage was executed
on 25th February 1943.
As a result, the re;pon<lents had to Jehcr
possession of the three-fourths share of their property to the mortg3g~c~.
On 30th July 1943, they filed a suit for the recovery of 'bout Rs. 18 .. 000
and interest, representing the loss they sustained owing to the failure of
the appellants to discharge the original mortgage of 1914.
On the question \Vhether the suit was time-barred,
HELD : When a conveyan.ce, contains a covenant by a purchaser lo
pay off an encumbrance on the property sold it is nothing more than
an in1plied contract of indemnity.
In such a case, in addition to the
right to bring an action to have himself put in a position to meet the
liability \Vhich the purchaser has failed to discharge, the vendor has also
a right to bring a suit on the contract of inden1nity if, as a resuh of
the purchaser's failure, the vendor incurs a lo3s.
Under Art. 83 of the
Limitation Act, 1908 which applies both to express ond implied contrJc1s
of indemnity, the cause of action arises when
the vendor was
actually
damnified.
Therefore, in the present case, as the sale deed in fav·.:.ur
of the appellants was a registered document, the respondents had six
years under Art. 83 read with Art. 116, for brin~ing the suit, ftom :'5ih
Feb;uary, 1943, when they were oe'liJolly d"11Jnifi~d. qfl<l !'1 i!io Si!if- was
within time. The mere fact that a m<>tlJl~!Jll decrw was pqsscd q5qin$t'
the rc.>pondent:> in 1937 was .not sufficient to start lirnftntiorl A3<t;ost. ;J?~m
as tin1e starts running on!y when there is actual dan111ification. [314 F, H;
315 D-E; 316 D-E, HJ

## Text

LALA SHANTI SW ARUP
\',
MUNSHI SINGH & ORS.
January 3, 1967
[J.C. SHAH AND V. RAMASWAMI. JJ.)
Indian Limitation Act (9 of 1908), Arts. 83 and 116-Sale of mrn111bered prop.erty--Cov~nant by purchas.er to pay uff e11cu111~rancc-:l;'~dl
ure by purchaser-Loss to Vf'11dor-Su1t ro recover /oss--Pcnod of lu111tation.
The respondents executed a simple mortgage for a sum of Rs. 12,000
in 1914. Later .. they wld half of the mortgaged property to the appellants. Out of the consideration a sum required to pay the amount (principal and interest) due to the mortgagees. was left with the appcil:rnL<.
The oppellants took possession of the property "onveyed, but did not
make any payment to the mortgagees.
The mortgagees brought a suit
for the recovery of the amount due to them and in 1937, a final decree
was passed against the respondents. The respondents then applied under
the U.P. Encumbered Estates Act, and the liability was apportioncJ between the appellants and respondents.
In 1943. the Collector took proceed!ngs under that . .\ct for the liquid~1ti0n of the t.lcbt anJ di'reclct.I the
respondents to execute a self-liquidating inoneagc uf three-fourths of their
half-share for a sum of about Rs. 20.8000.
The mortgage was executed
on 25th February 1943.
As a result, the re;pon<lents had to Jehcr
possession of the three-fourths share of their property to the mortg3g~c~.
On 30th July 1943, they filed a suit for the recovery of 'bout Rs. 18 .. 000
and interest, representing the loss they sustained owing to the failure of
the appellants to discharge the original mortgage of 1914.
On the question \Vhether the suit was time-barred,
HELD : When a conveyan.ce, contains a covenant by a purchaser lo
pay off an encumbrance on the property sold it is nothing more than
an in1plied contract of indemnity.
In such a case, in addition to the
right to bring an action to have himself put in a position to meet the
liability \Vhich the purchaser has failed to discharge, the vendor has also
a right to bring a suit on the contract of inden1nity if, as a resuh of
the purchaser's failure, the vendor incurs a lo3s.
Under Art. 83 of the
Limitation Act, 1908 which applies both to express ond implied contrJc1s
of indemnity, the cause of action arises when
the vendor was
actually
damnified.
Therefore, in the present case, as the sale deed in fav·.:.ur
of the appellants was a registered document, the respondents had six
years under Art. 83 read with Art. 116, for brin~ing the suit, ftom :'5ih
Feb;uary, 1943, when they were oe'liJolly d"11Jnifi~d. qfl<l !'1 i!io Si!if- was
within time. The mere fact that a m<>tlJl~!Jll decrw was pqsscd q5qin$t'
the rc.>pondent:> in 1937 was .not sufficient to start lirnftntiorl A3<t;ost. ;J?~m
as tin1e starts running on!y when there is actual dan111ification. [314 F, H;
315 D-E; 316 D-E, HJ
Case law referred to,
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784
,1f
1964.
Ar»~,,] frnm the judgment and decr~c dat~d fanuar•; 23, 1959
of the Allainbad High C·rnrt in First A;1;i~nl l\Jn. 139 of 1946.
A
ll
c
v
E
F
H
SHANTI SWARUP v. MUNSHI SINGH (Ramaswami, J.)
31 J
A
B. C. Misra and P. K. Ghose, for the appellant.
B
c
D
E
F
G
H
S. T. Desai, Sardar Bahadur and Arun B. Saharya, for respondents Nos. 1-9.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is
brought, by certificate, from
the judgment of the High Court of Allahabad dated January 23
1959 in First Appeal No. 139of1946.
Some of the plaintiff-respondents and the predecessor-ininterest of other plaintiff-respondents owned. lands in mahal Narain
Singh village Khetalpur Sahruiya. They
executed
a simple
mortgage of this property on May 9, 1914 in favour of two persons
Bansidhar and Khub Chand, for a sum of Rs. 12,000. Subsequently
a sale deed of half of this property which had been mortgaged was
executed by the owners (now represented by the plaintiff-responJents)
on February 9, 1920, in favour of Shanti Saran, the first appellant
aud three others, the remaining appellants. The consideration for
the sale-deed was a sum of Rs. 16,000 out of which a sum of
Rs.13,500 was left with the purchasers forpayr.ient of the amount due
to the mortgagees on account of principal and interest under the
mortgage dated May 9, 1914. The purchasers entered into possession of the property conveyed to them but neither they nor the
appellants made any payment to the mortgagees who in due
course brought a suit against the respondents for the recovery of the
amount due to them under the mortgage. On February 4, li/37,
a final mortgage decree was passed in their favour for a little over
Rs. 26,000. Thereafter the respondents made an. appli:ation
under the U.P. Encumbered E>tates Act, and by an order dated
May 22, 1939, the Special Judge apportioned th liability for the
mortgage debt between the respondents and the purchasers as
owners of half the mortgage<:! property. As a result of tbis apportionment the respondenls and the appellants were each held to be
liable for the sum of Rs. 14,307/9/6. It was further provided in this
order that the rc>p::mdents would be Ibbie to pay interest at 6 percent
per annum on the amount due by them from August !, 1933 uptil
September 28, 1936, and thereafter at 4! per cent per annum.
The Collector subsequently took proce~ding> fer liquidation of the
debt and on January 30. 1943 the Collector directed the execution
by the respondents of a self-liqmdating mortgage of threc-fourtl1s.
of the half share of the property of which they were tt,e owners.
That morlgai:e which was for the sum of Rg. 20,303/4/3 was ex~~uted
on February 25, 1943, and as a result the respondents had to deliver
posse~sion of this share of the property to the mortgagees. The
respondents thercafcer filed the suit out of which this appeal arhes
for the recovery of the sum of Rs. 18,500 and interest repre3cnting
the loss they had sustained owing to the failure of the app31lant or
314
SUPREME COURT REPORTS
[ 1967] 2 S.C.R.
of his predecessors-in-interest to discharge the original mortgage of
May 9, 1914. This suit was instituted on July 30, 1943. The
case of the plaintiff-respondents was that they had actually suffered
loss and injury as a result of the breach of trust by the defendantappellant on February 25, 1943 when they were
compelled to
execute the self-liquidating mortgage and to deliver possessionofthe
property in the proceedings for liquidation of that debt which had
been decreed by the Special Judge under the U.P. Encumbered
Estates Act. On behalf of the defendant-appellant it was pleaded
that the suit was time-barred. The contention was that the claim
of the plaintiff-respondents was a claim for compensation for
breach of contract which was entered into by a registered document,
so that the period of limitation was six years from the date on which
the breach of contract had been committed.
It was said that the
breach of contract should be deemed to have been committed in the
year 1920 when the defendant-appellant undertook to pay the money
to the mortgagees and failed to do so within a reasonable time.
The trial court over-ruleq the objection of the defendant anct decreed
the suit. The defendant appealed to the High Court. The Division
Bench which heard the appeal in the first instance referred the
question of limitation to a Full Bench of five Judges which held
that the suit was gove1ned by Art. 83 read with Art. 116 of the
Limitation Act and that time ran from February 25, 1943 which
was the date upon which the respondents were compelled to execute
a self-liquidating mortgage for the purpose of satisfying the mortgage
debt. On receipt of the decision of the Full Bench, the Division
Bench of the High Court dismissed the appeal and affirmed the
judgment of the trial court.
The question to be considered iu this appeal is whether the High
Court was right in taking the view that in the circumstances of the
present case the suit is governed by Art. 83 read with Art. 116 of the
Limitation Act and whether the terminus a quo for the limitation
was February 25, 1943 which was the date upon which the respondents
were compelled to execute a
self-liquidating mortgage.
On behalf of the appellant Mr. B. C. Misra put forward the
argument that a provision in a conveyance whereby the purchaser
agrees to pay off an encumbrancer does not give rise to any
contract of indemnity and that the appropriate article of Limitation
Act was Art. 116 and not Art. 83 and time began to run from tho
dato from which the covenant to pay off the encumbrancer is
broken. We arc unable to accept this argument as correct. If a
convcynace contains a
covenant by a purchaser to pay off an
encumbrance on the property sold the failure of the purchaser to
do so may give rise to two different causes of action. In the first
place, the failure of the purchaser to discharg~ the encumbrance
within such time as is provided expressly or by implication entitles
B
•
c
D
E
'
G
H
A
B
c
D
E
F
G
H
SHANTI SWARUP v. MUNS!Il SINGH (Ramaswami, /.)
315
the vendor to bring an action to have himself put in a position to
meet the liability which the purchaser has failed to discharge.
In
such a case, limitation will run under Arf. 116 of the Limitation Act
(or under Art. 115 if' the sale deed is unregistered) from the date on
which the purchaser ought to have paid off the mortgage. In
the second place, it is also open to the vendor to bring a-suit on the
contract of indemnity if as a result of the failure of the purchaser to
discharge the encumbrance the vendor incurs a loss. It was contended on behalf of the appellant that there was no express contract of
indemnity in the sale deed executed on February 9, 1920 in favour
of the appellant. But the contract of indemnity is implicit in this
case because of the covenant on the part of the purchaser to pay
off the previous encumbrance on the property sold. Under s. 124
of the Indian Contact Act "a contract of indemnity" is a contract by
which one party promises to save the other from loss caused to him
by the conduct of the promisor himself, or by the conduct of any
other person. Under
~t. 83 of the Limitation· Act a suit
based upon the contract of indemnity is required to be brought
within three years from the time when the plaintiff was actually
damnified. In the present case there is no express contract of
indemnity. But, in our opinion, the provisions of Art. 83 are also
applicable to a case where the contract of indemnity is implied and
not express. It was observed by the Judicial Committee in Musammat
lzzat-un-Niss:i Begam v. Kunwar Pertab Singh (1) that a contract of
indemnity may be express or implied and if the
purchaser
covenants
with the vendor to pay the encumbrances, there is
nothing more than a contract of indemnity. At page 208 of the
Report the Judicial Committee clearly expressed the proposition
as follows:
"It seems to depend on a very simple rule. On the sale
of property subject to incumbrances the vendor gets the
price of his interest, whatever it may be, whether the price
be settled by private bargain or determined by public
competition, together with· an indemni;y against the incumbrances aifecting the land. The contract of indemnity
may be express or implied. If the purchaser covenants
with the vendor to pay the incumbrances, it is still nothing
more than a contract of indemnity. The purchaser takes
the property subject to the burthen attached to it. If the.
incumbrances turn out to the invalid, the vendor has nothing
to complain of. He has got what he bargained for.
His indemnity is complete. He
cannot pick up the
burthen of which the land is relieved and seize it as his
own property. The notion that after the completion
of the purchase the purchaser is in some way a trustee
for the veodor of the amount by which the existence,
(I) 36 I. A. 203.
316
SUPREME COURT REPORTS
(1967] 2 SC.R.
or supposed existence, of incumbrances nas led to a diminution of the price, and liable, therefore, to account to
the vendor for anvthing that rem:tins of that amount after the
incumbrar~es are satisfied or disposed of, is without foundation. After the purchase i< completed, the vendor has no
cbim to participate in any benefi, which the purchaser may
derive from his purchase. It would be pedantry to refer
at length to authorities. But their Lordships, under the
circμmstanccs, may
perhaps be excused for mentioning
Tweddel v. Tiveddel [(1787) 2 Bro C.C. 151)], Butler v.
Butler [(1800) 5 Yes. 534 e.)j, and Waring v. Ward[(l802)
7 Yes. 332)]."
This decision was followed by the Full Bench of the Allahabad
Hig!1 Court in Tilak· Ram v. Surat Singh(').
Jn our opinion,
the rrinciplc applies to the pre>cn'. case and we accorrlingly hold
that the covenant undertaken by the
pred~cessor-in-interest of
the appellant was not only one to purch:1sc the vendor's property
but also one to relieve the vendor from ihc liability of the mortgage,
and in that sense there was an im:ilied co•Hract of indemnity in
favour of the vendor. It follows therefore
that Art. 83 of the
Lmil"ltion Act applies to this case and as the sale deed is a registered d0cument the plaintiff has six years for bringing the suit
from the time when he is
damnift~d or actually suffers loss. The
vie.v tlrnt we have expressed is borne out by a long catcna of authoritics.--Kumar Nath Bh•J/tacharjee v. Noho Kumar Bhuttacharjee,2
Ratan B:ii v. Gizasiram Gangabisan Wa11i(') lfarakclund Tarachand
v. S11111:11ilal Cl11111ila!(•) Gulabrao Vitlzoh:i v. Sha>nrao Jagoba,(')
NainM Kliatzm v. Sardar Basant Sing/z.(6) RamBarai Sing/iv. Sheodeni
Singh(?) and Venkatanarayanialz v. Subrama11ia lyer(8).
It was then contended by Mr. B. C. Misra that even if there
was a contract of indemnity the cause of action for the pbintiff
aroo.e on February 4, 1937 when the fin1l mor:g1ge de:ree was
passed and not on February 25, 1943 whrn the plaintiff was dispossessed. It was argued that the suit must b~ held to be brought
b~yond the period of limitation and the pbi.ntiff wa·; not entitled to
succeed. Jt is not possible form to accept thi> argument as correct.
The vcndees, in the present c1se, covenanted to th~ veadors not
only to purchase the property mentioned in the s1le deed but also to
relieve the vendors from the liability of the m:irtgages and in th~t
sense there was an imolicd contract to indemnify the vendor,.
The c1use of action in such a case arises when th~ plaintiff-vendors are
actually 1lamnified. The mere fact that a m·Jrt;pgc decree has been
obtained ag1inst the plaintiff is not sufficient to put the statute
------
(!) l.L.R Jl938J All. SJO.
(3) t.L.R. SS Bom, S65.
(5) A.l.R. 19481'\SE. 4)1.
(7) 16 C.W.N. IQ4'J.
(2) l.L.R. 26 C1!, 241.
(4) 33 Born, L.R. 12.JO.
(6) 1.L.R. SE All. 766.
(8) 74 ln<lian Cases :IJ9.
A
B
c
D
E
p
G
H
A
B
c
D
E
-.
SHANTI SWARUP v. MUNSHI SINGH (Ramaswami, J.)
317
in motion. In other words, the statute runs not when the event
happens which caused the loss but on the actual damnification.
"Where the covenant is to indemnify or save harmless, no action
can be brought till some loss has arisen; so it is also where the
covenant is to acquit from damage by reasons of a bond or
some :iarticular thing; and in either case the proper plea is
non damnificatus". (I Wms. Saund . .117, n. I;). In Collinge v.
Heywood (1) the plaintiff at the request of the defendant prosecuted an action, on receiving an undertaking to indemnify him from
the said distres~, actions, costs, damages, and expenses, which are·
now, or may be hereafter, commenced or otherwise incurred by
reason of the claim of the distraining party. The plaintiff incurred costs of the suit and his own attorney thereafter delivered him a
bi.II on account of them. But it was held by the King's Bench that
he was not :lamnified till he bad paid the bill.. In the present case,
the damage occurred to the plaintiffs not on February 4, 1937 when,
the final mortgage decree was passed in favour of the mortgagees
but on February 25, 1943 when the Collector directed the execution
by the plaintiffs of a self-liquidating mortgage of three-fourths of
the half share of the property of which they were· the. owners. We
are therefore of the opinion that, in the present case; time runs
under Art. 83 of the Limitation Act from February 25, 1943.
when the plaintiffs were compelled to execute the self-liquidating
mortgage for the purpose of satisfying the claim of the mortgagees.
For the reasons expressed we hold that there is no medt in
thi~ appeal which is accordingly dismissed with costs.
V.P.S.
Appeal dismissed:
(I) (1839), 9 A. & E.B. 633.