Holding

A contract void for mutual mistake under Section 20 renders all its terms, including a forfeiture clause, void, and the party who received earnest money must refund it under Section 65.

Summary

The petitioner, Tarsem Singh, owned agricultural land and entered into a sale agreement with the respondent, Sukhminder Singh, for Rs. 24,000 per acre, with Rs. 77,000 paid as earnest money. The parties differed on the unit of measurement—"bighas" versus "kanals"—leading to a mutual mistake about the land's area, an essential term of the contract. The lower courts held the contract void under Section 20 of the Indian Contract Act, 1872, and ordered the petitioner to refund the earnest money, a decision upheld by the High Court. On appeal, the Supreme Court affirmed that a mutual mistake as to a matter essential to the agreement renders it void, making the forfeiture clause unenforceable under Sections 73 and 74, and obligating restitution under Section 65. Consequently, the petition for special leave was dismissed, leaving the refund decree intact.

Issues considered

Whether a mutual mistake as to the area of land (and consequently the price) makes the sale agreement void under Section 20 of the Indian Contract Act, 1872.
Whether a forfeiture clause for earnest money is enforceable when the underlying contract is void.
Whether Section 65 of the Indian Contract Act mandates restitution of earnest money when an agreement is "discovered to be void".
Whether specific performance can be granted in a contract voided by mutual mistake.

Legislation cited

Indian Contract Act, 1872s. 10, s. 13, s. 14, s. 15, s. 16, s. 17, s. 18, s. 19, s. 20, s. 22, s. 23, s. 24, s. 65, s. 73, s. 74

Subjects

contract lawmutual mistakevoid agreementSection 20earnest moneyforfeiture clausespecific performancerestitutionSection 65Indian Contract Act

Judgment

A SRI TARSEM SINGH
v.
SRI SUKHMINDER SINGH

FEBRUARY 2, 1998

B [S. SAGHIR AHMAD AND M. JAGANNADHA RAO, JJ.]
'"I'.

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 offact 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
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 c
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. D
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
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.

CIVIL APPELLATE JURISDICTION : Special Leave Petition (c) No.
4639 of 1998.
c 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
D
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
of earnest money particularly as the parties had expressly stipulated in the
B
)-'
~ 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
facts which are to the effect that there was an agreement for sale between the
c
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
in the judgment of the Lower Appellate Court as under:- E

"(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,
the Lower Appellate Court proceeded to record the findings as under:-
B
"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
the respondent in the trial court, it is clear that he was never ready
c 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
performance because for the reasons already stated, it is abundantly
E 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
ready and willing to perform his part of the contract.
F
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
.
of them was sure whether it was 48 kanals 11 marlas, or 48 bighas 11
G 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:-
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".
F
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.
G
Section 10 of the Contract Act provides as under:-
-:( -+
"10. What agreements are contracts.-All agreements are co11tracts if

1
--1
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
expressly declared to be void. H

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

A 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:-
B
( 1) Free consent of the parties

(2) Competence of parties to contract

(3) Lawful consideration
c (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.

"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:-
E
"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
F
(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.
G
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". A
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.
B
Section 20 of the Act lays down as under:-

"20. Agreement void where both parties are under mistake as to
matter offact.-Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement
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 F
area calculated in terms of "bighas" or "Kanals".

"Bigha" and "Kanai" are different units of measurement. In the 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 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.
The contention of the learned counsel that the "mistake" with which the
B 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
of Rs. 77,000 which was paid as earnest money to the petitioner as there was
c 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
73 and 74 of the Contract Act which, in our opinion, are of no aid to the
E 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,
he is entitled to receive, from the party who has broken the contract,
F 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
complaining of the breach is entitled, whether or not actual damage or loss
G 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
c
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
and seek the enforcement of forfeiture clause, even by way of defence, in a D
/ suit instituted for Specific Performance by the respondent.

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."
F
1 This Section, which is based on equitable doctrine, provides for the
'y
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 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
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
I '· 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.
G
For the reasons stated above, we see no force in this Special Leave
-~ Petition which is dismissed.

v.s.s. Petition dismissed.