T.S. Misra, J.

1. The facts giving rise to this petition are these: On 29-3-1976 the U.P. Financial Corporation (hereinafter called the Corporation) published in the National Herald newspaper an advertisement, the relevant portion of which is extracted below:

We provide with pleasure loans for land, plant and machinery, stamps and registration, consultancy and interest during construction period. Margin money assistance for self-employment of educed persons to the extent of 10% of the total cost of the project, to assist you to meet preliminary and preoperative expenses, working capital margin and margin of fixed capital.

2. The Petitioner had obtained a diploma in Mechanical Engineering in First Division in the year 1969. He joined the Irrigation Department of the U.P. State Government as Junior Engineer (Mechanical). After perusing the aforesaid advertisement in the newspaper dated 29-3-1976 the Petitioner applied for a loan of Rs. 7.18 lakhs to the Corporation for setting up an industry in tools etc. The amount of loan was subsequently reduced to Rs. 4,11,000/-. Going ahead with his project the Petitioner applied on 1-4-1976 for a piece of land to set up his manufacturing unit to the U.P. State Industrial Development Corporation at Amausi. The land was allotted to him on 8-4-1976. The Corporation sanctioned a loan of Rupees 3,70.000/- against the demand of Rs. 4,11,000/- and communicated the sanction to the Petitioner by letter dated 27-9-1976. The terms and conditions of the loan were mentioned in Annexures Nos. 1 and 2 attached to that letter. The purpose for which the amount of loan was to be utilised was as follows:

(i)(a) For land direct payment to U.P.S.I.D.C, and balances to be paid by the party.Rs. 46,000/-

(b) For construction of factory building.Rs. 54,000/-

(p) For purchase of plant and machinery.Rs. 2,40,000/-

(d) For other expenses, viz. interest during construction period and mortgage expensesRs. 30000/-

TotalRs. 3,70,000/-





3. The value of investment at each Stage of disbursement, which was not to be less than 15% was as under:

(2) (a) LandRs. 54,000/-

(b) BuildingRs. 60,000/-

(c) Plant and MachineryRs. 2,56,000/-

(d) Contingencies and EscalationRs, 29,000/-

(e) Preliminary and preoperative expensesRs. 17,000/-

(f) Interest during construction periodRs. 19,000/-

TotalRs. 4,35,000/-





The recovery schedule was as under:

(3) (a) Total period12 years

(b) Gestation period2 years

(c) First instalmentRs. 12,000/-

(d) Four half-yearly instalments of Rs. 9,500/- eachRs. 38,000/-

(e) Subsequent 16 equal instalments of Rs. 20,000/- eachRs. 3,20,000/-

TotalRs. 3,70,000/-





The Petitioner sent a formal letter of acceptance. Thereafter he resigned from the Government service on 6-7-1977 with an avowed object of establishing a manufacturing concern and run his own business. An agreement was then executed on 11-7-1977 between the Petitioner and, the Corporation for the release of Rs. 90,000/- against a bank guarantee given by the Punjab National Bank for a period of nine months. The Corporation then released a sum of Rupees 90,000/- in favour of the Petitioner on 23-7-1977. Thereafter on 11-1-1978 an agreement was executed between the Petitioner and the Corporation for a term loan of Rs. 3,70,000/- requiring the Petitioner inter alia to create equitable mortgage of land and building by depositing the title deeds and also to hypothecate the moveable assets. A deed of hypothecation was required to be executed to secure the said loan, a copy of the said agreement is Annexure No. 2 to the writ petition. The deed of hypothecation was executed on 11-1-1978. The Petitioner, as required, also executed a pronote in favour of the corporation for a sum of Rs. 3,70,000/- and executed an irrevocable power of attorney in favour of the Corporation. The Petitioner invested the amount of Rupees 900,00/- for setting up the project. The progress of the project was found to be satisfactory and a certificate in that behalf was given by the Corporation. A building was constructed to install the machinery. Further money was then needed by the Petitioner for the purchase of the plant and machinery etc. He, therefore, asked for disbursement of Rs. 1,13,000/- out of the sanctioned loan amount for purchasing plant and machinery vide his letter dated 21-3-1978 (Annexure No. 4). He also demanded a sum of Rs. 46,000/- for making payment towards the cost of the land. The Petitioner also had an interview with the Corporation authorities to secure the, release of the amount, The Corporation, however, released a sum of Rs. 2,500/-. The Corporation had also remitted a sum of Rs. 46,200/- on 31-3-1978 on behalf of the Petitioner to the U.P. State Industrial Development Corporation against the cost of the land. But it did not disburse the balance amount demanded by the Petitioner alleging that he had not created sufficient assets so as to give stipulated margin for disbursement as per terms and conditions of the agreement deed. The contention of the corporation was that in view of the condition No. 23 of the agreement deed margin of security at each stage of disbursement should, not be less than 15% and the borrower should also invest proportionate amount for completion of the scheme. According to the Corporation the condition imposed vide Clause No. 23 of the agreement deed was a condition precedent and in absence of the fulfilment of the said condition loan amount could not he released. The Petitioner on the other hand contended that he had performed all the requirements which he was required to do under the agreement and that, he had invested his share of contribution towards the project; hence he was entitled to the release of the amount of Rs. 1,13,000/-. The Corporation did not agree to that view. The Petitioner pointed out to the Corporation that by not releasing the amount in question the Corporation had committed breach of agreement causing substantial injury to him inasmuch as the Petitioner could not procure the machinery within time and the very existence of the project had come in danger. The Petitioner therefore asked by his letter dated 17-5-1978 for the release of a sum of Rupees 2,31,500/- i.e., the balance of the term loan of Rs. 3,70,000/- within ten days and informed the Corporation that if it would not do so the Petitioner would be absolved from his liabilities under the agreement and would be entitled to he compensated by the Corporation for the losses sustained by him. In its reply dated 2-6-1978 the Corporation denied the allegations of the Petitioner and reiterated that it had released more disbursement, to the Petitioner than he was eligible to and that there was no breach on its part. It also asked the Petitioner to create further assets in terms of the sanction letter so that the further disbursement could be released. That letter was replied to by the Petitioner on l2-6-l978 reiterating his previous averments and asserting that under Clause 23 of the agreement deed the creation of the assets was not, a condition precedent to the release of the fund but the disbursement of the funds was to be made first by the Corporation and the Petitioner would invest this disbursement towards the project together with proportionate contribution. He, therefore again requested the Corporation to release the balance amount Rupees 2,31,500/- and informed it that on failure to do so the Petitioner would be absolved of his liabilities under the agreement. The Corporation sent a letter dated 16-7-1978 which was replied to by the Petitioner on 24-7-1978, in which the Petitioner inter alia stated that the agreement dated 11-1-1978 was no more operative and all the documents executed in pursuance of the said agreement had become void for want of consideration. Further correspondence ensued between the parties. The Corporation wrote a letter on T4-8-1978 reiterating its stand and the Petitioner wrote a letter on 4-9-1978. It may be mentioned here that the first instalment of the principal amount of loan was due to be paid in July, 1979. The Corporation, however, by its letter dated 16-6-1979 recalled the entire loan advanced to the Petitioner with interest. That letter was served on the Petitioner on 8-8-1979. The amount claimed in that letter was Rs. 1,62,382.31. The Petitioner sent a notice on 26-6-1979 to the Corporation claiming an amount, of Rs. 1,89,710/- a-"compensation and stated that after adjustment of the amount of Rs. 1,38,500/- and Rs. 7,700/- paid out of the sanctioned term loan and margin money loan an amount of Rs. 43,510/- was due to the Petitioner from the Corporation. The Petitioner, therefore, asked for the return of the title deeds. However, on 3-9 1980 the Petitioner received a notice of that date from the Tahsildar, Lucknow asking him t0 deposit an amount, of Rupees 2,31,440.83 p. for the recoveries sent by the Corporation. The original notice is Annexure No. 14 of the Writ Petition. The Petitioner has filed thiswrit petition under Article 226 of the Constitution impugning the validity of the said notice and praying that the notice be quashed. He has also asked for a writ in the nature of mandamus directing the Corporation to return the title deeds of the property deposited by him as also the hypothecation deed in respect, of the machinery and plant executed by him duly discharged. He has also asked for a writ in the nature of prohibition restraining the Respondents from realising any amount from him by way of collection charges. The petition has been opposed and a counter-affidavit has been filed by the Corporation.

4. The Corporation, opposite party No. 1, has reiterated in its counter-affidavit that it has committed no breach of the terms of the agreement of loan. According to it the very important condition of the loan was condition No. 23 of the sanction letter which is a part 0f the agreement for project loans which the Petitioner had executed in favour of the Corporation. It provides that the margin of security at each stage of disbursement shall not be less than 15% and in order to enable the Corporation to make payment of Rs. 2,500/- to the Petitioner and Rs. 45,000/- directly to U.P.S.I.D.C., against the cost of project this ratio of margin of money was reduced to 10% at the request of the Petitioner. Thus, the Corporation released more disbursement in favour of the Petitioner than to which he was really entitled in accordance with the terms and conditions of the sanction advice. The Corporation further stated in the counter-affidavit that vide its letter dated 2-6-1978 which was in reply to the Petitioners letter dated 17-5-1978 it had assured the Petitioner that if he created further assets loan amount would be disbursed without any delay, The Corporation denied that the Condition No. 23 of the sanction advice mentioned only an average margin of 8.1%, The Corporation disputed the calculations made by the Petitioner in that behalf. The Petitioner was sanctioned a loan of Rs. 3,70,000/- and the total cost of project came to Rs. 4,35,000/-. Thus according to the Corporation the margin of security came to about 15%, In this connection the Corporation pointed out that the Petitioner had ignored a sum of Rs. 30,000/- while calculating the margin and if that amount was taken into account while calculating the margin it came to about 15%. So according to the Corporation further advancement of loan could not be made as the Petitioner had not, created sufficient assets which was a condition precedent vide Clause 23, The Corporation has also averred in the counter-affidavit that, the recall notice was issued on 16-6-1980 when the Petitioner refused to clear overdue interest and even did not allow the Technical Officer of the Corporation to inspect his unit by taking the plea that the U.P. Financial Corporation had violated the terms of agreement. The Corporation also denied that, the Petitioner has suffered any losses. It, however, admitted that a recovery certificate was issued on 14-4-1980 for Rs. 2,10,398.94 including Rs, 19,127.17 as collection charges,

5. In his rejoinder-affidavit the Petitioner reiterated the averments made in the writ petition. He pointed out that the term Margin of Security had been defined in the Vivran Patrika published by the Respondent No. 1 as "entrepreneurs contribution" expressed as percentage of the total cost of project. It has been alleged in the rejoinder-affidavit that while reckoning the margin of security at any stage, the investment towards the various components of the total cost of the project was to be taken into account. The Petitioner had already invested his share of investment at the stage of disbursement; hence the Corporation was liable to pay the entire amount of sanctioned loan under the agreement dated 11-1-1978. However, the Corporation failed to advance further loan and committed breach of the agreement in consequence whereof the sole purpose of the agreement for which the loan was advanced was frustrated and as such the Petitioner was not liable to refund any amount under the agreement,

6. So, from a perusal of the writ petition, counter-affidavit and the rejoinder-affidavit it appears that the Petitioner had entered into an agreement with the Corporation for advancement of loan. The Petitioner submitted his project for establishing a factory. The Corporation sanctioned a loan of Rupees 3,70,000/- to the Petitioner against the demand of Rs. 4,11,000/-. A sum of Rs. 90,000/- was released by the Corporation against the bank guarantee on 23-7-1977. Another sum of Rs. 48,500/- was also released on 31-3-1978 in the manner that Rs. 46,000/- were paid directly by the Corporation to the U. P. State Industrial Development Corporation towards the cost of the land and Rs. 2,500/- were paid in cash to the Petitioner. In this way a total sum of Rs. 1,38,500/- had been advanced to the Petitioner by the Corporation as loan. The Petitioner then asked for the release of further sum of Rs. 2,31,500/- being the balance of the sanctioned loan of Rs. 3,70,000/-. The Corporation told the Petitioner that in view of the condition No. 23 of the sanction advice further loan amount would be disbursed only after taking stipulated margin of security and that the margin of each security should not, be less than 15%. The borrower should also invest proportionate amount from his own resources to-r wards the completion of the scheme. The Corporation assured the Petitioner that if he created further assets further loan amount would be disbursed without any delay. On the other hand the Petitioner contended that he was entitled to the release of further amount of loan and as the Corporation had failed to do so it had committed breach of the agreement. The Corporation asked for payment of overdue interest which the Petitioner had not paid. Ultimately the Corporation exercised its right to recall the entire amount of loan with interest and gave a notice in that behalf saying that the Petitioner had committed breach of the terms of agreement. So, each party alleged that the other had committed breach of the agreement. Significantly, by letter dated 24-7-1978 the Petitioner informed the Corporation that as the Corporation had committed breach of the agreement, the agreement of 11-1-1978 was no more operative and the Petitioner was absolved of all his liabilities under the agreement and he was also entitled to be compensated for the losses and damages which he had suffered due to the said breach. He also asked for the return of his title deeds. The Corporation denied that it had committed breach of agreement vide reply dated 14-8-1978 and stated in no unmistakable terms that the Petitioner would not be entitled to further disbursement until he created further assets from his own resources or alternatively furnished a suitable bank guarantee for a period of at least six months from any scheduled bank. The Petitioner was asked to choose any of the alternatives. The Petitioner refuted these allegations and then on 6-8-1979 a notice recalling the entire loan already advanced was given by the Corporation to the Petitioner on the ground that the Petitioner had failed to abide by the terms of the mortgage deed and had not deposited the overdues relating to loan advanced by the Corporation. Thus the Petitioner put an end to the contract alleging that the Corporation had committed breach thereof by refusing to perform its promise in its entirety. The Corporation on the other hand rescinded the contract alleging that the Petitioner had failed to abide by the terms thereof and had not deposited the overdues relating to interest on loan advanced to him. Whoever may have committed breach of the contract one fact is certain that the contract has b en put to an end. The Petitioner says that in the circumstances of the case he is absolved from his liability of making payment of any amount to the Corporation and is entitled to the release of his title deeds. The Corporation on the other hand insists for the recovery of the entire amount paid to the Petitioner as loan together with interest in terms of the contract and says that as the Petitioner has failed to repay the loan it is perfectly entitled to recover the same as an arrear of land revenue by sale of the property and other prescribed modes.

7. In the case of Union of India (UOI) Vs. Raman Iron Foundry, while pointing out the distinction between penalty, liquidated damages and debt the Supreme Court observed (at p. 1273):

.... Now the law is well settled that a claim for unliquidated damage does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach become entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(a) ofShe Transfer of Property Act, which provides that a mere right to sue for damages cannot, be transferred....

8. Further the Supreme Court said that this has always been the law in England and as far back as 1858, it can be found stated by Wightman, J. in Jones y, Thompson ((1858) 27 LJQB 234: 120 ER 430) in the following terms:

Ex parte Charles and several other decide that the amount of a verdict in an action for unliquidated damages is not a debt, till judgment has been signed.

In that case it was held that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the Plaintiff till the judgment is actually delivered. In ODriscoll v. Manchester Insurances Committee ((1915) 3 KB 499: 85 LJKB 83) Swinten Eady, L.J., said while considering the claim for unliquidated damages:

... In such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given....

9. No pecuniary liability thus arises till the court has determined that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the Defendant is liable and then it should proceed to assess what that liability is. But, till that determination, there is no liability at all upon the Defendant, (see Iron and Hardware (India) Co. Vs. Firm Shamlal and Bros., . The view of the Bombay High Court was referred to with approval in the case of Union of India (UOI) Vs. Raman Iron Foundry, . The court said:

....A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable,

10. Referring to the concept of debt the Supreme Court in Union of India v. Raman Iron Foundry (supra) said that a sum due is the same thing as a debt due. The classical definition of debt is made out in Webb v. Stenton (1883) 11 QBD 518: 52 UQB 584wherein Lindley, L.J., said:

... a debt is a sum of money which is now payable or will become payable in the future by reason, of a present obligation.

There must be debitum in praesenti, solvendum may be in praesenti or in futuro that is immaterial. In other words there must be an existing obligation to pay a sum of money now or in future.

11. The Supreme Court of California in People v. Arguello (1869) 37 Calif 524 had observed:

.... Standing alone, the word debt is as applicable to a sum of money which has been promised at a future day as t0 a sum now due and payable. If we wish to distinguish between the two we say of the former that it is a debt owing and of the latter that, it is a debt due." This passage from the judgment of the Supreme Court of California was cited with approval by our Supreme Court in Union of India (UOI) Vs. Nanak Singh, .

12. From the above discussion it may be deduced that a claim for compensation under the law of contracts is not a claim for such sum which is instantly due and payable. In the field of con tracts, the amount named by parties as payable in case of breach of a contract, whether that amount be in the nature of liquidated damages or a stipulation by way of penalty, is not a sum immediately due in the nature of a debt, it is, on the other hand, the uppermost limit of the reasonable compensation awarded by the court. If there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit.

13. The situations in which one of the parties to a contract, may rightfully rescind and put an end to it are dealt with Under Sections 39, 53, 54, 55 and 64 of the Contract Act. Section 39 states that when a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. The rightful rescinding of a contract involving reciprocal promises has been dealt with u/s 53 of the which provides that when a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the other party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract. Section 54 deals with the effect of default as to the promise which should be first performed, in a contract consisting of reciprocal promises. The section provides that when a contract consists of reciprocal promises such that one of them cannot be performed, or that its performance cannot, be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract. Section 55 deals with the effect of failure to perform at fixed time, in a contract in which time is essential. Section 64 concerns the consequences of rescission of voidable contracts stating that when a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received. Thus the general conditions in which a contract can be rightfully rescinded have been first contemplated u/s 39. Sections 54 and 55 are applicable to those general conditions in the particular field of reciprocal promises. Section 55 then seeks to apply the same conditions in the field of such contracts in which time is essence of their performance. Section 64 dealt with the consequences of repudiation of a contract by such party at whose option it was repudiable. Section 75 on the other hand enables the person rightfully rescinding a contract to get compensation from the party at whose fault the repudiation had to be brought about. Section 64 in this way deals with some sort of liabilities, and does not deal with claims so directly. Since it makes a per- 1983 A11./16 VI G-7-8 son liable, the very liability of that person may legitimately give rise to the claim of another person. So, when Section 64 says that the party who lawfully rescinds a contract must, return the benefit which he has under the contract received from the party for whose conduct the contract had to be repudiated, it has the implication in it of giving birth to the claim of the other party to insist upon the repudiating party to make restoration of the benefit which he has hitherto received or enjoyed under the contract. The peculiarity about this claim is that it is not after all a claim of compensation. It is obviously that type of claim which can better be called as claim for restoration or restitution. The aim is to bring the parties to a position as if there had been no contract. In its aim and intent, the claim for compensation is quite the reverse of a claim of restitution. A claim for compensation aims not at bringing the parties in a position as if no contract had been entered into but in a position as if the contract had been performed. The one restores the benefit, the other recoups the loss. The person who lawfully rescinds a contract is, on the one hand, under a legal liability to restore the benefit, if any received by him under the contract to the person from whom he has received it, and gives him at the same time and on the other hand, a legal right to claim compensation for the damage, if any, he has suffered through the non-fulfilment of the contract (see "Law of Claims by Dr. R.G. Chaturvedi, pages 454 and 455). The kind of refusal contemplated in Section 39 of the Contract Act is one which affects the vital part of the contract and pro vents the promisee from getting in substance what he bargained for. The claim for compensation u/s 75 is maintainable when the right of repudiation of the contract has been exercised under either of the Sections 39, 53, 54 or 55 of the Contract Act.

14. The law with regard to claim for interest is also by now well settled. The claim for interest may be sustained on]v in cases where the same is claimed either in terms of the agreement itself or when it is permitted by some law or custom or usage having the force of law. Interest may be awarded for the period prior to the date of the institution of the suit if there is an agreement for the payment of interest at fixed rate, or, if interest is payable by the usage of trade having the force of law, or under the provisions of any substantive law entitling the Plaintiff to recover interest, as for instances, u/s 80 of the Negotiable Instruments Act and u/s 61 of the Sale of Goods Act or Interest Act. Interest can be awarded if there was a debt or a sum certain payable at a certain time or Otherwise by virtue of some written contract and there must. have been a demand in writing, stating that interest will be demanded from the date of the demand (see Seth Thawardas Pherumal Vs. The Union of India (UOI), and Union of India v. Rallia Ram AIR 1963 BC 1685. In the absence of any usage or contract, express or implied or of any provision of law to justify the award of interest, the court cannot award interest by way of damages Caused on account of wrongful detention of money.

15, The facts of the instant case may now be examined in the light of the principles stated herein above. The Petitioner had entered into an agreement dated 11-1-1878 with the Corporation for the purposes of obtaining loan from the Corporation. The Petitioner applied to the Corporation for the advance of a loan of Rs. 3,70,000/- for the purpose of construction of factory building (Rupees 54,000/-) for purchase of new plant and machinery (Rs. 2,40,000/-), for purchase of land (Rs, 46,000/-) and for ether expenses, namely, interest during construction period and mortgage expenses (Rs. 30,000/-), The Corporation agreed to advance that loan on terms and conditions mentioned in that agreement with interest and other charges to be secured by creating an equitable mortgage of land and building by deposit of title deeds and also by hypothecation of movable assets. The Petitioner also executed a promissory note. He agreed that if the said loan was advanced he shall repay the same to the Corporation at the place where the Head Office of the Corporation is situated: for the time being by 21 half yearly instalments the first being of Rupees 12,000/- subsequent 16 half yearly instalments of Rs. 20,000/- each. He also agreed that whatever portion of the said loan was advanced it would be repaid by instalments as aforesaid. The first instalment was to fall due for repayment on the second anniversary date of the advance of the first instalment of the loan by the Corporation. The first instalment of loan was advanced by the Corporation on 23-7-1977. So, the first instalment of repayment of the loan by the Petitioner to the Corporation was to fall due on 23-7-1979 and every subsequent instalment was to be paid half yearly, The Petitioner had also agreed In clear terms that the repayment will lie made "together with interest" on the said principal sum or the balance thereof remaining unpaid for the time being at the rate of 4%, per annum above the Reserve Bank of India rate subject to a minimum of 13.5% per annum computed on the said sum of Rs. 3,70,000/- from the respective dates on which the various instalments of loan had been actually lent and advanced by the Corporation to the Petitioner and payable half yearly on the thirtieth day of June and 31st day of December each year; the first of such payments was to be made on the 30th day of June, 1978 It: was also agreed that ail interest which shall during the continuance of the loan accrue due on the said principal sum or any part thereof which shall for the time being remain unpaid and all other moneys which become payable under the agreement shall, in case the same be not paid on the days on which they become due, carry interest at the same rate aforesaid computed from the respective times of such interest or moneys accruing due upon the footing of compound interest computed at the same aforesaid rate, with rests taken or made half yearly, but if the default in payment of the instalments of the principal or interest continues for more than six months beyond the due date, the payment of which is so delayed shall bear interest at the rate of 2% pet annum over and above the stipulated rate of interest compoundable half yearly and all such compound interest shall be charged on the land, buildings and machinery to be mortgaged and upon all the other assets of the borrower to be assigned to the Corporation. It was stipulated in the agreement that it shall be lawful for the Corporation to suspend or cancel further advances of the loan to be raised if the borrower commits any breach of any of the terms or conditions of the agreement. Further it was stipulated that nothing therein contained shall be deemed to affect or prejudice the rights and powers of the Corporation under the agreement including its right to call for the whole of the debt in default of payment of any instalment or other breach of the terms of the agreement. It was also stipulated in the agreement that in accordance with the provisions of Section 30 of the State Financial Corporations Act 1951, the Corporation may by notice require the borrower forthwith to discharge in full its liabilities to the Corporation if inter alia the borrower has failed to comply with any of the terms of its contract with the Corporation in the matter of the said loan. The further stipulation in the agreement was that over and above the other rights and powers of the Corporation conferred on it by the said Section 30 of the State Financial Corporation Act and without, prejudice to such rights and powers the Corporation shall have the right by notice in writing to require the borrower forthwith to discharge in full the liabilities to the Corporation in the following cases and in any of such cases the whole of the amount then remaining payable to the Corporation shall, at the option of the Corporation become payable "to the Corporation as if the time for the payments thereof had expired, namely, (a) if default shall be made by the borrower for a period exceeding three months in the payment of any instalment of the said principal sum, or (b) if interest amounting to at least Rs. 500/- (Rupees five hundred) shall be in arrears and, unpaid for three months after becoming due. Clause 14 of the agreement laid down that all dues in connection with the loan advanced by the Corporation or advanced by or on behalf of the State Government or Central Government shall at the option of the Corporation be also realisable as arrears of land revenue. It appears that the first instalment of interest had not been paid by the Petitioner. The Petitioner had demanded further release of loan amount but the Corporation insisted for the creation of more assets for the purposes of security before further loan could be advanced, The Petitioner contended that the Corporation was imposing unwarranted conditions, that the total investment made by the Petitioner was Rupees 1,96,727.05 p. against the disbursed loan amount of Rs. 1,38,500/- while under Clause 23 of the agreement an investment of Rs, 1,52,350/- only was expected from the Petitioner, that he had already invested his share of investment at that stage of disbursement, that while reckoning the margin of security at any stage, the investment towards the various components of the total cost of the project was taken into account hence while approaching second time the total investment on the project should not have been less than Rs. 99,000/- i.e., Rs. 90,000/- plus Rs. 9,000/- being lOn/o of Rs. 90,000/- on account of his contribution. According to him he had provided a margin of Rs. 50,727.05 over the disbursed amount of Rs. 90,000/- i.e., Rs. 1,40,727.05 minus Rs. 90,000/- advanced by the Corporation which was more than 55% of the amount of Rupees 90,000/- disbursed by the Corporation, When the request for further release of sanctioned loan amount was made by him this position was not accepted by the Corporation and it reiterated that the Petitioner had failed to abide by the terms of the mortgage deed and had not deposited the overdues relating to loan advanced to him by the Corporation and if was therefore decided by the Corporation to recall the whole of the outstanding amount of the said loan under the terms of the deed of mortgage executed by the Petitioner, Consequently by the notice dated 6-8-1979 the Corporation asked the Petitioner to repay the amount, of Rupees 1,62,382.31 (principal outstanding Rs. 1,38,500.00 plus interest due up to 31-12-1978 Rs. 23,882.31) together with interest up to the date of payment. The Petitioner disputed his liability to repay the principal amount as also interest. Then steps were taken by the Corporation to recover the loan as an arrear of land revenue. A recovery certificate was sent by the Corporation to the District Magistrate, Lucknow, on 14-4-1980 showing as under:

PrincipalRs. 1,38,500.00

InterestRs. 52,771.77

10% Collection ChargesRs. 19,127.17

TotalRs. 2,10,398.94





The Tahsildar has, however, sent the impugned notice (Annexure No. 14) dated 3-9-1980 to the Petitioner showing the following:

ArrearsRs. 2,10,398.94

Collection ChargesRs. 21,039.89

NotionRs. 2.00

TotalRs. 2,31,440.83





Obviously the amount mentioned in the recovery certificate sent by the Corporation to the District Magistrate (vide para 32 of the petition) for Rupees 2,10,398.94 included 10% collection charges amounting to Rs. 19,127.17. However, the notice (Annexure 14) further claims a sum of Rs. 21,039.89 as collection charges. The Petitioner has contended that there is no provision either in the deed of agreement executed by him or any law entitling the Respondents or any of them to claim any whimsical sum as collection charges from the Petitioner without incurring any costs in the collection proceedings. Moreover, the claim for Rs. 40,167.06 (i.e. Rs. 19,127.17 plus Rs. 21,039.89) is totally unjustified, unwarranted and illegal inasmuch as no costs had been incurred in collection proceedings and no property was put to sale. In our view, there is substance in this contention.

16. Section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 enables recovery of certain dues as arrears of land revenue. It provides inter alia that where any person is party to an agreement relating to a loan given to him by the Corporation by way of financial assistance the Managing Director of the Corporation may send a certificate to the Collector mentioning the sum due from such person and requesting that such sum together with costs of the proceedings be recovered as if it were an arrear of land revenue. The Collector on receiving the certificate shall proceed to recover the amount stated therein as an arrear of land revenue. Sub-section (3) of Section 3 of the said Act provides that no suit for the recovery of any sum due as aforesaid shall lie in the civil court against any person referred to in Sub-section (1). Rule 284 of the U. P. Zamindari Abolition and Land Reforms Rules deals with the sale of land and other immovable property for recovery of dues as arrears of land revenue. Sub-rule (2) of Rule 284 reads as under:

(2) When immovable property other than the land is put up for sale, a charge shall be levied upon such amount not exceeding the total sum due for recovery as may be realized by the sale at the rate of three naya paise per rupee of the sale proceeds, fractions of a rupee being excluded.

The costs of the collection proceedings obviously are not known when the certificate is sent, to the Collector by the Managing Director of the Corporation asking the Collector to recover certain sum from the debtor as an arrear of land revenue. He can merely ask the Collector that the sum mentioned in the certificate be recovered together with costs of the proceedings. What would be the actual costs of the proceedings would naturally be ascertained when the costs are actually incurred. This is also clear from Rule 284(2) of the U.P. Zamindari Abolition and Land Reforms Rules which says that a charge shall be levied for recovery upon such amount not exceeding the total sum due for recovery as may be realized by the sale at the rate of 3 naya paise per rupee of the sale proceeds. So, the charge can be levied only when the sale of the property actually takes place. The amount of Rs. 19,127.17 as collection charges included in the sum of Rs. 2,10,398.94 as also the amount of Rs. 21,039.89 towards the collection charges mentioned in the notice (Annexure 14) could not, therefore, be legally claimed from the Petitioner. The impugned notice (Annexure 14) is bad in law and is, therefore, liable to be quashed.

17. The Petitioner has, however, asked for the release of his title deeds on the ground that nothing is payable by him to the Corporation. Those title deeds were given to the Corporation by the Petitioner creating an equitable mortgage as security for the loan advanced; hence so long as the mortgage is not redeemed title deeds cannot be released. The Petitioner, however, contends that nothing is payable by him to the Corporation. He admits to have taken loan but he contends that as a result of the breach of contract committed by the Corporation he has suffered damages to the tune of Rupees 1,89,710/-, hence after adjusting the amount of Rs. 1,38,500/- being the principal amount of loan and Rs. 7,700/- paid out of the sanctioned term loan and margin money loan an amount of Rs. 43,510/- was due to him from the Corporation. The Corporation on the other hand has contended that it has not committed breach of agreement and by reason of Section 30 of the State Financial Corporations Act, 1951 as also under the terms of the agreement it had recalled the payment of the entire amount advanced to the Petitioner along with interest thereon. Whether the breach of contract was committed by the Petitioner or by the Corporation the fact remains that the contract has been put an end to. Assuming though not deciding, that the Corporation had committed breach of contract, the Petitioner then rescinded the contract. This would have given rise both to a right and a liability together. The Petitioner in such circumstances, on the one hand, would be under a legal liability to restore the benefit, if any, received by him under the contract to the Corporation from whom he has received it and at the same time, on the other hand, has a legal right to file a suit for compensation for the damages he has suffered through the non-fulfilment of the contract. A breach of contract gives rise to a right to file a suit for compensation but the legal liability to restore the benefit is still there. The Petitioner says that he has suffered damages to the tune of Rs. 1,89,710/- and after adjusting the principal amount of loan he claims that a sum of Rs. 43,510/- is due to him from the Corporation. In other words, he has stated that he has restored the benefit received by him from the Corporation by way of loan by making adjustment thereof against the damages which he has suffered on account of the breach. Whether a sum of Rs. 1,89,710/- has become due to the Petitioner from the Corporation towards the compensation on account of breach of the contract cannot be adjudicated in the instant writ petition. As stated earlier, a claim for unliquidated damage does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instante i.e. at that instant incur any pecuniary obligation, nor does the party complaining of the breach become entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right Ho sue for damages (see Union of India (UOI) Vs. Raman Iron Foundry, . The Petitioner cannot in these circumstances ask for the release of his title deeds in the present proceedings. If the Corporation has committed breach of the contract he gets entitled to file a suit for damages He is also entitled to redeem the mortgage by sale of his properties or otherwise in accordance with law and if the Petitioner proceeds to sell his property the Corporation would be under a legal obligation to extend all co-operation in the matter because the sale would always be subject to mortgage and encumbrances.

18. Now, assuming that the Petitioner has committed breach of contract by not, observing the terms of the contract and paying the installment of interest at the stipulated time, the Corporation would be entitled to ask for the payment of the entire amount of the loan with interest. Section 30 of the State Financial Corporations Act, provides that notwithstanding anything in any agreement to the contrary, the Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporation if the industrial concern has failed to comply with the terms of its contract with the Financial Corporation in the matter of the loan or advance or if there is a reasonable apprehension that the industrial concern is unable to pay its debts or that proceedings for liquidation may be commenced in respect thereof, or if for any reason it is necessary to protect the interests of the Financial Corporation. The Corporation may impose such conditions as if may think necessary or expedient for protecting its interest and securing that the accommodation granted by if. is put to the best use by the industrial concern as provided u/s 27 of the. Where any industrial concern, which is under a liability to the Corporation under an agreement, makes any default in repayment 0f any loan or advance or any instalment thereof or otherwise fails to comply with the terms of its agreement with the Corporation. Section 29 of theconfers a right on the Corporation to take over the management of the said concern as well as sell and realise the property pledged, mortgaged, hypothecated or assigned to the Corporation. Section 31 of thelays down special provisions for enforcement of claims by the Financial Corporation. It provides that where an industrial concern in breach of any agreement, makes any default in repayment of any loan or advance or any instalment Hereof or otherwise falls to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance u/s 30 and the industrial concern fails to make such repayment then without prejudice to the provisions of Section 29 of theand of Section 69 of the Transfer of Property Act any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance, or for transferring the management, of the industrial concern, or for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended. Obviously without the permission of the Board the Petitioner cannot sell the property or any part thereof to any third person. The Board cannot, however, in our view, refuse to grant permission, without reasonable and proper excuse, to the Petitioner to sell the property with a view to redeem the mortgage.

19. On the rescission of the contract the amount advanced by the Corporation together with interest thereon till the date of the rescission of the contract became repayable to the Corporation as a "sum certain". The Corporation in its notice dated 6th Aug. 1978 had asked for payment of Rs. 1,62,382.31 together with interest op to the date of payment. The Petitioner has admittedly not repaid the amount. Hence he would, in our view, be liable to pay simple interest at the Reserve Bards of India rate as was prevailing at the time the loan was advanced, on the said sum of Rupees 1,62.382.31 from 6-8-1979 till the date of repayment.

29. If the breach of the contract has been committed by the Corporation the Petitioner may file a suit for recovery of damages which he has suffered but his liability repay the loan with interest is not, wiped out merely on the ground that the Corporation has committed breach of contract. The amount of loan with interest is to be repaid, but if the Petitioner has suffered damages and the court in an appropriate suit, if filed by him finds that particular amount of damages has been suffered and passes a decree for the same, the Petitioner may ask for adjustment of the principal amount of loan together with interest thereon. Similarly, if the contract has been breached by the Petitioner by not paying the overdue interest at the stipulated time and by not complying with other conditions of the contract then too the Petitioner would be liable to repay the loan with interest. In either event the amount of loan with interest as discussed above is repayable and so long as that is not paid up the Petitioner cannot ask for the release of his title deeds because those title deeds were given to the Corporation while creating equitable mortgage.

21. Fox the reasons in the foregoing, the petition is allowed in part. The notice dated 3-9-1980 (Annexure 14) to the writ petition is quashed, and the opposite-parties are restrained from realising any amount towards the collection charges as no property of the Petitioner had been put to sale for recovery of the loan. The U.P. Financial Corporation is, however, directed to afford reasonable opportunity and grant permission, if asked for, to the Petitioner to sell the properties mortgaged and hypothecated or any portion there of by private negotiations for the purpose of redeeming the mortgage and repaying the loan.

22. In the circumstances of the case the parties shall bear their own costs.