Gujarat High Court
Ashokbhai Madhubhai Patel vs Madhubhai Jagubhai Patel on 10 July, 2024
Author: Biren Vaishnav
Bench: Biren Vaishnav
NEUTRAL CITATION
C/FA/2346/2024 ORDER DATED: 10/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2346 of 2024
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2024
In R/FIRST APPEAL NO. 2346 of 2024
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ASHOKBHAI MADHUBHAI PATEL
Versus
MADHUBHAI JAGUBHAI PATEL & ORS.
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Appearance:
MR. DHAVAL VYAS, SENIOR COUNSEL FOR M/S.VYAS
ASSOCIATES(1559) for the Appellant(s) No. 1
MR DA SANKHESARA(5955) for the Appellant(s) No. 1
for the Defendant(s) No. 1,10,2,3,4,5,6,7
MR SP MAJMUDAR(3456) for the Defendant(s) No. 11,8,9
MR V Z BHARDA(12667) for the Defendant(s) No. 11,8,9
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 10/07/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV) 1 This appeal under Sec. 96 of the Code of Civil Procedure, 1908, has been filed by the appellant, who was the original plaintiff. He challenges the order dated 08.02.2024, passed by the 15th Additional Senior Civil Judge, Surat, below Exh.12 and 13 in Special Civil Suit No. 231 of 2022. By the aforesaid order, the learned Judge dismissed the suit under the provisions of Order VII Page 1 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Rule 11 of the Code of Civil Procedure, 1908.
2 The plaintiff had filed the suit seeking a declaration that the registered Sale Deed dated 16.03.2022, executed by the defendant Nos. 1 to 4 in favour of defendant nos. 5 to 11 be declared as null and void and not binding to the appellant - plaintiff. It was further prayed that a declaration be issued that the defendants No. 5 to 11 acquired no right in the subject land.
2.1 A further relief was prayed for a specific performance of the Agreements to Sell dated 01.02.2007 and 16.07.2007 executed by the defendant Nos. 1 and 2 and their predecessors in favour of the plaintiff.
Alternatively, it was prayed that the defendants be directed to pay an amount equivalent to the market price of the subject land with interest @18%. The reliefs prayed for in the suit read as under:
"1 to declare that the registered sale deed dated 16.3.2002 executed by defendant nos. 1 to 4 in favour of defendant nos. 5 to 11 was null and void and was not binding on the plaintiff, further to Page 2 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined declare that defendant nos. 5 to 11 acquired no right in the subject land on account of such sale transaction and to further direct the Mamlatdar, Adajan, Surat to set aside entry no. 4111 dated 25.3.2022 pursuant to the said sale deed.
2 For specific performance of the Agreement to Sell dated 1.2.2007 and 16.7.2007 executed by defendant nos. 1 and 2 and their predecessor in favour of the plaintiff and to further appoint a Court Commissioner for execution of a sale deed in favour of the plaintiff.
Alternatively If the Hon'ble Court is not inclined to pass a decree for specific performance, then defendant nos. 1 and 2 and defendant nos. 5 to 11 be directed to pay the plaintiff an amount equivalent to the market price of the subject land along with 18% interest towards loss, from the date of filing of suit.
3 To declare that the defendants their agents and servants have no rights to create any rights, in any way, including by transferring, alienating, leasing the subject land to any third party/ies, from executing any written/oral agreements, seeking development permissions etc., or otherwise with a view to frustrate the right of the plaintiff in the subject land.
4 To injunct the defendants their agents and servants from creating any rights, in any way, including by transferring, alienating, leasing or otherwise to any third party/ies with a view to frustrate the right of the plaintiff in the subject land."
3 It was the case of the appellant plaintiff as set out in Page 3 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined the plaint that the land bearing Survey No. 107, Block No.133 admeasuring 17402 sq.mtrs situated at Palanpore, Taluka: Adajan, District: Surat, belonged to the defendants. The land originally was of the ancestor-
Keshavbhai Jagubhai Patel who died on 14.12.2019. The land, therefore, vested in the defendants who were the lineage descendants of Keshubhai Patel. On the death of Shri Keshubhai Patel on 14.12.2019, a revenue entry was made on 19.01.2021 in favour of the defendant Nos. 3 and 4 and other sisters. Subsequently, some of the descendants on 26.07.2021, prepared a release deed in favour of defendant Nos. 3 and 4.
3.1 According to the plaintiffs, they had entered into an Agreement to Sell on 01.02.2007 for purchase of the said land for consideration of Rs.33,30,000/-. An amount of Rs.1,00,001/- was paid and as per Condition No.7 of the Agreement to Sell, it was the responsibility of the plaintiffs, intended purchasers to get approval under Sec.43 of the Tenancy Act. The case of the plaintiffs was Page 4 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined that they had over a period of time on 24.02.2007 and 16.07.2007, paid considerations of Rs.8 lakhs and Rs.10 lakhs respectively and thereafter, paid the remaining amount of Rs.25,28,000/-. However, it was the case of the plaintiffs that when a public notice was issued on 05.08.2022 for title clearance, wherein, the name of defendants Nos.5 to 11 appeared and on examination of the revenue records, having come to know that the land in question have been sold to defendant Nos. 5 to 11, the reliefs as quoted hereinabove were prayed for. To the plaint so filed before the Trial Court, the defendant nos. 1 to 4 and defendant nos. 5 to 11 moved applications Exh.12 and 13 under Order VII Rule 11 (a) and (d) of the Code of Civil Procedure for rejection of the plaint.
3.2 It was the case of the applicant of the Order VII Rule 11 application, that if the Satakhat was executed on 01.02.2007 and 16.02.2007, from the plaint itself it was revealed that the disputed property, a new tenure land, was a prohibited tenure land and could not have been Page 5 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined sold or alienated without the prior permission of the Collector. The case of the applicants therefore, who were the defendants before the Trial Court was that since the disputed property could not be transacted in light of the provisions of Sec.43 of the Tenancy Act, the suit was liable to be rejected.
3.3 The Trial Court, by the impugned order dated 08.02.2024, accepted the stand of the defendants holding that reading the plaint on the whole, the pleading revealed that the nature of the disputed property is of new tenure land and hit by the provisions of Sec.43 of the Tenancy Act. Having been hit by the provisions therefore of the Act and in light of the decision of the Full Bench of this Court, when a suit for specific performance is based on an illegal and an invalid agreement for sale, the same is not maintainable. The suit was accordingly ordered to be dismissed.
4 Mr.Dhaval Vyas, learned Senior Advocate appearing Page 6 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined with Mr.D.A.Sankhesara, learned counsel for the appellant, would make the following submissions:
4.1 He would submit that Sec.43 of the Gujarat Tenancy & Agricultural Lands Act, 1948, restricts the transfer of land or any interest therein by sale without the previous sanction of the Collector. He would submit that if the agreement contained a condition that permission be taken first and the Sale Deed be executed thereafter, such an agreement cannot be said to be illegal or invalid because the transaction could be in two parts and the defendant can be directed to perform the obligation to seek permission from the Collector which apparently cannot be void.
4.2 Mr.Vyas, learned Senior Counsel, would further submit that merely because the agreement results in what is known as a void agreement, the object itself cannot be said to be forbidden or unlawful. When the agreement is read in its entirety coupled with other facts, Page 7 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined it would create a legal and an enforceable right. Relying on the provisions of Secs. 19 & 21 of the Transfer of Property Act, which permits conditional transfer, Mr.Vyas, learned Senior Counsel, would submit that a suit for seeking a decree of specific performance in case of a conditional agreement would lie before the Civil Court. He would further submit that Conditions in Sec.43 which prohibits an agreement in writing being invalid without the previous sanction of the Collector does not put a complete bar or prohibition to enter into such transaction.
4.3 Mr.Vyas, learned Senior Counsel, would submit that the transaction in violation of Sec.23 is said to be invalid and not void. Relying on the provision of Sec.43 of the Tenancy Act and provisions of Sec.85A, he would submit that on a conjoint reading of these sections, the question whether the land is of restricted tenure or the sale is invalid or not is to be decided by the Collector and the Civil Court cannot examine the question and reject the Page 8 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined plaint under Order VII Rule 11. Even, according to Mr.Vyas, learned Senior Counsel, if the judgement of the Full Bench would render such a transaction being invalid in light of the law laid down by it in view of the provisions of Order 6 Rule 8 and Order 8 Rule 1, the voidness of the contract would be a matter of defense for the defendant while considering an application under Order VII Rule 11.
4.4 Extensively reading the decision of the Full Bench, Mr.Vyas, learned Senior Counsel, would submit that the Full Bench has not answered the question whether a plaint can be rejected when there are additional reliefs as was in the present case inter-alia for damage / compensation which may have to be sought in the plaint.
Mr.Vyas, learned Senior Counsel, would rely on paragraphs 9, 21, 33,34, 47, 57 and 58 and the operative part of the order in paras 152 to 155 to submit that the Full Bench did not consider the issue of the relief of compensation. What the Full Bench considered was that when a suit for specific performance was filed for a land Page 9 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined which was a restricted tenure land, the suit for such a decree would not be maintainable. Relying on a decision in the case of D. Ramachandran Vs. R.V. Janakiraman & Ors., reported in (1999) 3 SCC 267 and in the case of Sejal Glass Limited Vs. Navilan Merchants Private Ltd., reported in (2018) 11 SCC 780, Mr.Vyas, learned Senior Counsel, would submit that when the relief of refund of earnest money apart from the relief of permanent injunction was prayed for, the plaint could not be rejected as the same would amount to partial rejection of the plaint.
4.5 Relying on Sec.65 of The Indian Contract Act, learned Senior Counsel Mr.Vyas, would submit that the said provision puts an obligation on the person who has received an advantage under a void contract to restore the advantage which it has received. The suit for relief of damage which had been prayed for, would therefore be maintainable. Reliance was placed on the decisions in the case of The Life Insurance Corporation Of India Vs. Page 10 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Rajmata Saheb Chowhanji & Ors., reported in (1978) 3 SCC 244 and in the case of Nadiminti Suryanarayan Murthy (Dead) through Lrs Vs. Kothurthi Krishna Bhaskara Rao & Ors., reported in AIR 2017 SC 5052.
4.6 Even otherwise, the aspect whether had the agreement been discovered as void would be a matter of fact, which the Court would ascertain based on the evidence which may be led by the parties during the trial.
Mr.Vyas, learned Senior Counsel, would submit that presuming that the agreement is void, in light of Sec.70 of the Indian Contract Act, it would be the duty of the vendor to compensate the Vendee for his non gratuitous act. Reliance was placed on a decision in the case of Shri Balubhai Jethabhai Shah Vs. Shri Chhaganbhai Bamanbhai & Anr., reported in AIR 1991 Gujarat 85.
4.7 Mr.Vyas, learned Senior Counsel, would even submit that the appellant is entitled to seek damages in addition to or in substitution of relief of specific performance Page 11 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined under Sec. 21 of the Specific Relief Act and such a relief cannot be barred by law even when the agreement is alleged to be void. Reliance was placed on a decision in the case of Katta Sujatha Reddy & Anr Vs. Siddamsetty Infra Projects Private Limited., reported in (2023) 1 SCC 355.
5 Mr.S.P.majmudar, learned counsel appearing for the defendants, respondents herein on caveat would submit as under:
5.1 In light of a clear averment in the plaint that the subject land in question was a new tenure land and when even the Agreement to Sell mentions such a fact, in lieu of the decision of the Full Bench in the case of Deceased Shaikh Ismailbhai Hushainbhai Through Lh. Vs. Ambalal Dhanabhai., reported in (2024) (0) AIJEL-HC 24772, the plaint is rightly rejected by the Trial Court.
He would submit that as the transaction was hit by Sec.43 of the Tenancy Act, it was a transaction opposed Page 12 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined to public policy and therefore there was a clear bar for enforcement of such contract under Sec.23 of the Contract Act. He would also rely on paras 111, 112, 125 and 126 of the decision of the Full Bench in the case of Ismailbhai (supra).
5.2 Mr.Majmudar, learned counsel, would submit that as far as the aspect of relief of compensation and damages as claimed by the appellant is concerned, the issue had been specifically dealt with by the Full Bench in issue No. (V) which had been framed in the judgement. Even otherwise, that issue had been dealt with in the relevant paragraphs of the decision in light of the decision of the Hon'ble Supreme Court in the case of Rajasthan Housing Board Vs. New Pink City Nirman Sahakari Samiti Ltd., reported in (2015) 7 SCC 601. The Full Bench had taken into consideration that no right would accrue to a person even to claim compensation in light of such a void transaction.
Page 13 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined 5.3 Mr.Majmudar, learned counsel, would submit that when there was a specific bar contained in the execution of the agreement with the previous sanction of the Collector such an agreement was unenforceable in the eye of the law. Relying on the provisions of Sec.2(h) of the Contract Act, which defines the term "Contract", Mr.Majmudar, would submit that in light of the decision of the Supreme Court in the case of Kuju Collieries Ltd Vs. Jharkhand Mines Ltd & Ors., reported in 1974 (2) SCC 533, it is clear that an agreement which is unenforceable in the eye of law is said to be void and therefore would not fall in the definition of the term "Contract" and in light of the illegality of the agreement which was to the knowledge of the appellant - plaintiff at the time of the execution of such an agreement being void-ab-initio, and considering that both the parties were in pari delicto, the court would not come to the assistance of such a person who was knowingly privy to such a contract.
Page 14 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined 5.4 Mr.Majmudar, learned counsel, would submit that the appellant plaintiff would not be entitled to any relief under Sec.21 of the Relief Act since from the very inception the contract was void. Reliance was placed on a decision in the case of Mulamchand Vs. State of Madhya Pradesh, reported in 1968 SCC Online SC 21.
Even otherwise, the agreement was not enforceable in law as the proceedings were time barred because, when the Agreement to Sell was cancelled on 08.5.2008 the rigors of Article 54 of the Limitation Act would apply and therefore, the plaintiff was not entitled to the relief of the alternative damages also.
5.5 Mr.Majmudar, learned counsel, would submit that Sec. 70 of the Contract Act will also not apply as it is for non- gratuitous act and not for void documents. The judgement in the case of Balubhai Jethabhai (supra), dealt with by the learned counsel for the appellant Mr.Vyas, would not apply as it does not deal with void-ab-
initio agreements. The claim that the plaint cannot be Page 15 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined rejected in partial would also not be applicable where here the plaint was fully rejected in light of the decisions of the Full Bench and that of Mulam Chand (supra) and Kuju Collieries (supra).
6 Having considered the submissions made by the learned counsels for the respective parties, it is a matter of no dispute that from the pleadings of the plaint itself when it was revealed that the disputed property was a new tenure land which could not be alienated without the prior permission of the Collector, an Agreement to Sell entered into between the parties before seeking such a previous permission was clearly hit by the bar of Sec.43 of the Gujarat Tenancy Act. It was in this light that the defendants had filed applications under Order VII Rule 11 of the Code of Civil Procedure that the suit for specific performance based on illegal and invalid Agreement to Sell was not maintainable.
6.1 To the contention raised by the learned Senior Page 16 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Advocate Mr.Vyas on the alternative submission of the relief alternatively prayed for for damages and / or compensation and the fact that the Full Bench had not dealt with such a contention, we need to consider the decision of the Full Bench in light of the facts and the submissions made by the learned counsels for the respective parties. The questions which were framed by the Full Bench, read thus:
"9 The main question which falls for our consideration is "whether the plaint is liable to rejected under Order VII Rule 11 of the CPC on the ground that suit for specific performance of contract based on an illegal or invalid Agreement to Sell, hit by Section 43 of the Tenancy Act, 1948, is not maintainable?"
10 At this stage, the ancillary issues raised by the learned Advocates of the first set appearing for the vendees , who are agitating that the above question is to be answered in Negative "No", are to be taken note of, inasmuch as, the contention of the learned Advocates is that without answering the following issues, answer to the question of reference is not possible.
11 The issues raised before us are : -
(i) Where an agreement contains a condition that prior to effecting the sale, the requisite permission of the competent authority under Section 43 or 63 of the Tenancy Act, 1948 shall be sought, such an agreement whether can be specifically enforced Page 17 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined strictly in accordance thereof ?;
(ii) Where an Agreement to Sell contains condition that the restricted tenure shall first be converted to old tenure and, thereafter, such old tenure land shall be sold, be invalid under Section 43 of the Tenancy Act, 1948 ?;
(iii) Where an agreement contains condition that the agricultural land shall first be converted to non-
agricultural land and, thereafter, such non- agricultural land shall be sold, be invalid under Section 63 of the Tenancy Act, 1948;
(iv) Whether invalidity of agreement under Section 43 or 63 of the Tenancy Act, 1948 is limited to the said Act or does it absolves the parties from their reciprocal rights and obligations under the agreement and make the agreement unenforceable in Civil Court?;
(v) Whether a plaint can be rejected on the ground of transaction being invalid under the Tenancy Act, 1948 when the alternative remedy of refund of earnest money or compensation or other remedy like permanent injunction, protection of possession, damages etc, have also been sought in the suit ?;
(vi) In absence of any order passed by the Competent Authority under The Gujarat Tenancy and Agricultural Land Act, 1948 (in short "the Tenancy Act, 1948), invalidating the Agreement to Sell, whether plaint can be rejected under Order VII Rule 11 of CPC or the suit for specific performance can be dismissed by the Civil Court, on the ground that the said agreement is invalid under Section 43 or 63 of the Tenancy Act, 1948;
(vii) Whether the Civil Court has jurisdiction to adjudicate the issue as to whether such agreement Page 18 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined is or not invalid in view of the bar under Section 85 of the Tenancy Act, 1948?;
6.2 Question (V) when read indicates that the Full Bench before it had the issue to be considered was whether a plaint can be rejected on the ground of transaction being invalid when the alternative remedy of refund of earnest money or compensation or other remedy have also been sought in the suit. Extensively arguments have been raised by the learned counsels for the respective parties even on the issue of whether the relief of compensation could have been prayed for and the suit could have been dismissed. Reading paras 33 and 34 of the decision in the Full Bench give us an insight of the arguments before the Full Bench. Paras 33 and 34 read as under:
" 33 Ms. Trusha M. Patel, learned advocate, adding to the above argument, would submit that the question is as to whether in absence of any order passed by the competent authority under the Tenancy Act, 1948 invalidating the Agreement to Sell, the plaint can be rejected or the suit for specific performance can be dismissed by the Civil Court, merely on the ground that the said agreement is invalid under Section 43 of the Tenancy Act. She tries to impress upon us by submitting that when the alternative remedy of refund of earnest money or compensation, or other Page 19 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined remedies, such as permanent injunction, protection of possession, damages etc. have been sought in the suit while seeking the decree of specific performance of agreement, the plaint cannot be rejected on the ground of the transaction being invalid under the Tenancy Act. For rejection of the plaint, under Order VII, Rule 11 of the Code of Civil Procedure, the suit has to be barred and not the remedy sought in the said suit. The plaint cannot be rejected where other reliefs have been sought, which can only be granted by the Civil Court. Partial rejection of the plaint is not permissible.
34 It was further argued that Section 65 of the India Contract Act,1872, puts an obligation on a person, who has received advantage under a void contract or a contract that becomes void. In view of the said provision, in a suit where alternative relief of refund of sale consideration is sought or the reliefs of compensation and damages are prayed, it would be maintainable and plaint cannot be rejected under Order VII, Rule 11 of the Code of Civil Procedure. Reference has been made to Section 65 of the Transfer of Property Act to assert that the said provision recognizes the rights and liabilities of the buyer and seller in absence of a contract to the contrary and seller is bound to disclose to the buyer any material defect in the property or his seller's title thereto or which the seller is and the buyer is not aware, and which the buyer could not, with ordinary care, discover."
6.3 It will be also in the fitness of things to reproduce para 50 of the decision of the Full Bench, which reads as under:
"50 A conjoined reading of Sub-section (1) and (2) of Page 20 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Section 43 gives a clear indication that the Legislature did not intend to make the transaction null and void. The word "invalid" in Sub-section (2) of Section 43 cannot be read over as inter- changeable with "null and void". The use of word "invalid" is a conscious decision of the legislature and "invalid" has a separate meaning than "illegal".
Reliance is placed on the decision of Laurance Arthur Adamson 20 to urge that the words used in a statute must be taken in their legal sense unless the contrary intention appears. The legislature has chosen to use the word "invalid" in contradistinction to the word "nullity" or "null and void", as employed in other statutes. Once the Legislature has chosen to use the term "invalid" in preference to "null and void", the term should be understood as being distinct from "null and void" or "nullity" and such a differential use is to be duly respected by the Court, while reading and interpreting the statutory provision. It was argued that the statutory provision as also the statute must be read as a whole keeping in mind the intention of the legislature to assign meaning to the words in the Statute."
6.4 With regard to the argument of Sec.70 of the Contract Act, as is evident from the argument set out by the very counsel for the appellant herein, that has been a part of the argument too before the Full Bench, paras 59 to 61 of the judgement of the Full Bench, read as under:
"59 Mr. Dhaval D. Vyas, learned advocate, adding the above noted contentions of the learned Advocates for the vendees, would submit that it is to be kept in mind as to what would be the stage of deciding the question as to enforceability of the Page 21 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined agreement in a suit for specific performance of an agreement hit by Section 43 of the Tenancy Act, 1948, or whether it is at the stage of Order VII, Rule 11 of the Code of Civil Procedure. It was contended that presuming that the agreement is void, in the light of Section 70 of the Indian Contract Act, it would be the duty of the vendor/defendant to compensate the Vendee for his non-gratuitous act. It is the vendor who has to put it before the Court that the contract is invalid, the defence in the nature of Written statement under Order VIII, Rule 2 is to be made categorically stating that whether the transaction is void or voidable by law nongratuitous. Bare denial of a valid contract in the written statement by the defendant would not be a denial of the legality or sufficiency in law of such contract in view of Order VI, Rule 8 of the Code of Civil Procedure. Further, the plaintiff is not bound to make any statement as to a matter of fact as to whether the burden of proof lies upon the other side. No statement of fact as to a matter, which the law presumes in his favour, is to be brought up in the pleading. The question as to whether a contract is illegal or unenforceable in law being said to be void or it is forbidden by law, as per Section 23 of the Contract Act, cannot, thus, be seen at the stage of Order VII, Rule 11 of the Code of Civil Procedure. The Civil Court, on prima facie, consideration of the plaint and the documents filed therewith, will not be able to reach at the conclusion, without framing of the issue and without leading evidence that it can be culled out from the reading of the plaint on its face value that the suit is barred being based on an agreement hit by Section 43 of the Tenancy Act, 1948. The Civil Court, thus, cannot reject the suit under Order VII, Rule 11 of the Code of Civil Procedure, mandatorily.
60 The decisions of the Apex Court in Sita Ram22 , Firm of Pratapchand Nopaji23 , Kalyanpur Lime Page 22 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Works Ltd.24 have been relied upon to argue that the principle that the Courts will refuse to enforce an illegal agreement at the instance of a person, who himself is a party to the illegality or fraud, has exceptions, as narrated therein in paragraph No. "11" of Sita Ram (supra) as under:-
"11. The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud is expressed in the maxim in pari deucto portior est conditio defendentis. But as stated in Anson's 'Principles of the English Law of Contracts', 22nd End., p. 343: 'there are exceptional cases in which a man will be relieved of the consequences of an illegal contract into which be has entered cases to which the maxim does not apply. They fall into three classes: (a) where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in furtherance of it; (b) where the plaintiff is not in pari delicto with the defendant. (c) where the plaintiff does not have to rely on the illegality to make out his claim.'"
61 It was submitted that it is well established that object of an agreement cannot be said to be forbidden or unlawful, merely because the agreement results in what is known as "void" contract. A void agreement, coupled with other facts, may become part of a transaction, which creates legal right. The real question is whether the agreement between the parties is so connected with the execution of an object prohibited by a law so as to be hit by Section 23 of the Contract Act. It was argued that the object of the agreement in question, in the instant case, to transfer a New Tenure land cannot be said to be prohibited by law, inasmuch as, Section 43 of the Tenancy Act, 1948 itself permits Page 23 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined such transfer with the previous sanction of the Collector. As the object of the agreement itself cannot be said to be forbidden by law or unlawful, merely because of the language employed in Section 43(2), the agreement without the previous sanction of the Collector cannot be said to be a void agreement so as to empower the Civil Court to reject the plaint under Order VII, Rule 11 of the Code of Civil Procedure. "
6.5 Analyzing the arguments of the learned counsels for the respective parties, the Full Bench set out to examine these issues and in doing so relied upon several decisions of the Hon'ble Supreme Court as well as of this Court and even of the other High Courts qua the analysis of the arguments as set out in question (vii) of the Full Bench. It will be in the fitness of things to reproduce paragraphs 90 to 108 on the appreciation of the restriction on transfer in context of the Contract Act. Paras 90 to 108 read as under:
"90 To deal with the above submission, we find that the words "invalid", "forbidden by law" and "void"
have to be understood in the context of the provisions of the Indian Contract Act, 1872. Section 23 of the Contract Act provides as to when consideration or object of an agreement is said to be lawful. It prescribes that the consideration or object of an agreement is lawful, unless it is forbidden by law. Meaning thereby, that an agreement of which Page 24 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined the consideration or object is forbidden by law is unlawful. It further provides that every agreement of which the object or consideration is unlawful is void. The interpretation clause in Section 2(c) of the Contract Act states that "an agreement not enforceable by law is void". The Contract, within the meaning of Section 2(h) of the Contract Act is an agreement enforceable by law. Section 2(i) states that an agreement, which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. Section 2(j) states that a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Section 23 of the Indian Contract Act, 1872 is relevant to be noted as under:-
"23. What consideration and objects are lawful, and what not.-The consideration or object of an agreement is lawful, unlessIt is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of an law; or is fraudulent; or involves or implies, injury to the person or property of another; or the court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."
91 The Allahabad High Court in the case of Nutan Kumar32 considering the provisions of Section 2(h)
(g) and Section 23 of the Contract Act, has noted that every agreement made for or about any matter or thing which is either forbidden by any Statute or would defeat the provisions of any law, or the Court regards it as opposed to public policy, is unlawful and ipso facto void. It was held that an agreement offending a Statute or public policy or forbidden by law is not merely void, but it is invalid from nativity. It cannot become valid even if the parties thereto agree to it. The concept that an agreement may be Page 25 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined void in relation to a specified person and may be valid or voidable within the parties thereto is not applicable to an agreement, the very foundation whereof law interdicts; or which is of such a character that, if permitted, it would frustrate the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral or opposed to public policy. Neither party can enforce such an agreement. No legal relations come into being from an agreement offending a statute or public policy. It was held that void agreements are destitute of all legal effects and force. They are totally ineffectual rather cipher. No legally enforceable relationship, right or liability emanates therefrom. The distinction between 'illegal' and 'void' contracts has been highlighted in paragraphs No.'72','73' and '74' therein as under:
"72. In Deep Narain Singh v. Nageshwar Prasad, AIR 1930 AH 1 at p. 3 (FB) : (1930 All LJ 45), it has been observed as under :
"There is a clear distinction between an agreement which may be forbidden by law and one which is merely declared to be void. In the former case, the legislature penalises it or prohibits. In the latter case, it merely refuses to give effect to it."
73. It may be observed that the distinc-tion between illegal and void contracts may be very thin but it is there. Sir William Anson in his Book "On Law of Contracts" has very succinctly stated the legal position as thus : "..... The law may either forbid an agreement to be made, or it may merely say that,if it is made the Courts will not enforce it. "In the former case, it is illegal, in the latter only void, but inasmuch as illegal contracts are also void, though void Page 26 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined contracts are not necessarily illegal, the distinction is for most purposes not important and even Judges seem sometime to treat the two terms as interchangeable." See Gherulal Parekh's case, AIR 1959 SC 781 at p. 786."
74. In Manna Lal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424 : (AIR 1977 SC 536) at p. 430 para 11, it has been observed by the Supreme Court as under.
"A contract is void if prohibited by statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition." The above authorities lead to a conclusion that although for all practical purposes, illegal contracts and void contracts are taken at par with each other nevertheless the dis tinction between the two is there. Illegality of a contract arises as a result of infraction, contravention or breach of any express or implied provisions of law properly so-called that is a constitutionally valid enactment made by the legislature or of a subordinate legislation i.e. rules, bye-laws, regulations or orders -- or even usages and customs -- having the force of law. On the other hand, the void contract is one which is declared as such by virtue of sections 23 to 30 etc. of the Contract Act or by a provision of any other enactment."
92 In the case of Mannalal Khetan33 while interpreting the language employed in Section 108 of The Companies Act, 1956, wherein words " shall not register" has occurred, it was observed that the mandatory character is strengthened by the negative form of the language. The prohibition against transfer without complying with the provisions of the Act is emphasized by the negative Page 27 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined language. Negative language is worded to emphasis the insistence of compliance with the provisions of the Act. Negative words are clearly prohibitory and are ordinarily used as a legislative devise to make a statutory provision imperative.
93 The decision of the Apex Court in the case of Raza Buland Sugar Co. Ltd.34 has been noted in paragraph "17" therein to record that the prohibitions and negative words can rarely be directory, in the following manner:-
"17. In Raza Buland Sugar Co. Ltd. v.
Municipal Board Rampur(4) this Court referred to various tests for finding out when a provision is mandatory or directory. The purpose for which the provision has been made, its nature, the intention of the legislature in making the provision, the general inconvenience or injustice which may result to the person from reading the provision one way or the other, the relation of the particular provision to other provisions dealing with the same subject and the language of the provision are all to be considered. Prohibition and negative words can rarely be directory. It has been aptly stated that there is one way to obey the command and that is completely to refrain from doing the forbidden act. Therefore, negative, prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory. (See Maxwell on Interpretation of Statutes 11th Ed. p. 362 seq.; Crawford Statutory Construction, Interpretation of Laws p. 523 and Seth Bikhraj Jaipuria v. Union of India"
94 It was held that where a contract, express or implied, is expressly or by implication forbidden by Statute, no Court will lend its assistance to give it Page 28 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined effect. A contract is void if prohibited by a Statute under penalty, even without express declaration that the contract is void. It was observed in paragraph "20" as under:-
"20. It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void. The legal maxim 'A pactis privatorum publico juri non derogatur means that 'private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no court can lend its assistance to give it effect. (See Mellis v. Shirley L.B.) (Supra). What is done in contravention of the provisions of an Act of the Legislature cannot be made the subject of an action."
95 Justice Subba Rao in the case of Chandra Sreenivasa Rao while dealing with a question pertaining to Section 23 of the Indian Contract Act has considered the question as to the connotation of the word "object" in Section 23 in contradistinction to the word "consideration". It was noted that the word "object" in Section 23 of the Contract Act is distinct from the word "consideration" and meant as "purpose" or "design". If the "purpose" of the parties is to defeat the provisions of the law, the "object" of the agreement is unlawful. In other words, an agreement designed to defeat the "object" and "purpose" of a law is an agreement forbidden by law within the meaning of Section 23 of the Indian Contract Act. The question would be as to whether the agreement, which is forbidden by law, can be enforced by a Court of law.
96 In light of the above position of law, considering the language employed in Section 43(1) of the Tenancy Act, 1948 this Court in Hasvantbhai Page 29 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Chhanubhai Dalal (supra) has considered the difference between the 'void' and 'illegal' agreement in paragraphs "61","62","64" and "65" as under:-
"• DIFFERENCE BETWEEN "VOID" AND "ILLEGAL" AGREEMENT:
61. The Indian Contract Act, 1872 has made it clear that there is a thin line of difference between void and illegal agreement. A void agreement is one which may not be prohibited under law, while an illegal agreement is strictly prohibited by law and the parties to the agreement can be penalized for entering into such an agreement. A void agreement has no legal consequences, because it is null from the very beginning. Conversely, the illegal agreement is devoid of any legal effect, since it is started. All illegal agreement are void, but the reverse is not true. If an agreement is illegal, other agreements related to it are said to be void. An agreement that violates any law or whose nature is criminal or is opposed to any public policy or immoral is an illegal agreement. These agreements are void ab initio, and so the agreements collateral to the original agreement are also void. Here the collateral agreement refers to the transaction associated or incidental to the main agreement. The difference between void and illegal agreement can be drawn clearly on the following grounds:
[1] An agreement which loses its legal status is a void agreement. An illegal agreement is one which is not permissible under law.
[2] Certain void agreements are void ab initio while some agreements become void when it loses its legal binding. On the other hand, an Illegal agreement is void since the very beginning. A void agreement is not prohibited by Penal Code, 1860 (IPC), but IPC strictly prohibits an illegal agreement. [3] The scope a void contract is comparatively wider than an illegal contract as all agreements which are Page 30 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined void may not necessarily be illegal, but all illegal agreements are void from its inception. [4] A void agreement is not punishable under law whereas an illegal agreement is considered as an offence, hence the parties to it are punishable and penalised under Penal Code, 1860 (IPC). [5] Collateral agreements of a void agreement may or may not be void i.e. they may be valid also. Conversely, collateral agreements of an illegal agreement cannot be enforceable by law as they are void ab initio.
62. It is quite clear that the void and illegal agreement are very different. One of the factors that make an agreement void is the illegality of the contract, such as contract whose object or consideration is unlawful. Moreover, in both the two agreements loses its enforceability by law.
xxx xxx xxx
64. In the case of Rajasthan Housing Board v. New Pink City Niarman Sahkari Samiti Limited reported in (2015) 7 SCC 601, the Supreme Court had the occasion to consider the provisions of the Rajasthan Tenancy Act, 1955. The litigation before the Supreme Court had something to do with the land acquisition proceedings. In the said case, the parcels of land were transferred by the Scheduled Caste khatedars in favour of a person who was not the member of the Scheduled Caste. The Supreme Court held that the agreement of sale of land by the Scheduled Caste khatedars to the Housing Society could be termed as void ab initio. The Supreme Court took the view thatthe decree for specific performance of the agreement obtained by the society being prohibited under Section 42 of the Rajasthan Tenancy Act, 1955 and opposed to public policy could be termed as a nullity and unenforceable. of course, it is true that the word Page 31 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined used in Section 42 of the Rajasthan Tenancy Act, 1955 is "void", whereas the word used in Section 43(2) of the Tenancy Act, 1948 is "invalid". However, if the transaction is found to be opposed to public policy, the same cannot be enforced. This principle would be applicable irrespective of the fact whether the transaction is invalid or void. Section 43 of the Tenancy Act has its own importance. There is a fine distinction between a restricted tenure and old tenure. If a person derives land in accordance with the provisions of the Tenancy Act, such acquisition is one of a restricted tenure land. The land is given for a specific purpose keeping in mind the object of the Act, 1948. I may quote the observations made by the Supreme Court in paras 26, 27, 28 and 30 as under:
"26. In the instant case, the transaction is ab initio void that is right from its inception and is not voidable at the volition by virtue of the specific language used in section 42 of the Rajasthan Tenancy Act. There is declaration that such transaction of sale of holding "shall be void". As the provision is declaratory, no further declaration is required to declare prohibited transaction a nullity. No right accrues to a person on the basis of such a transaction. The person who enters into an agreement to purchase the same, is aware of the consequences of the provision carved out in order to protect weaker sections of Scheduled Castes and Scheduled Tribes. The right to claim compensation accrues from right, title or interest in the land. When such right, title or interest in land is inalienable to non-SC/ST, obviously the agreements entered into by the Society with the Khatedars are clearly void and decrees obtained on the basis of the agreement are violative of the mandate of section 42 of the Rajasthan Tenancy Act and are a nullity. Such a prohibited transaction opposed to public policy, cannot be enforced. Any other interpretation would Page 32 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined be defeasive of the very intent and protection carved out under section 42 as per the mandate of Article 46 of the Constitution, in favour of the poor castes and downtrodden persons, included in the Schedules to Articles 341 and 342 of the Constitution of India.
27. In State of Madhya Pradesh v. Babu Lal [(1977) 2 SCC 435] : (AIR 1977 SC 1718), the provisions contained in section 165(6) of M.P. Land Revenue Code, 1959 came up for consideration before this Court. The High Court directed the State to file a suit for declaring the decree null and void. The decision was set aside. It was held that the case was a glaring instance of violation of law as such the High Court erred in not issuing a writ. The decision of the High Court was set aside. The transfer which was in violation of proviso to section 165(6) transferring the right of Bhuswami belonging to a tribe, was set aside.
28. This Court in Lincal Gamango v. Dayanidhi Jena [(2004) 7 SCC 437 : AIR 2004 SC 3457] while considering the provisions of Orissa Scheduled Areas Transfer of Immovable Property (by Scheduled Tribes) Regulation, 1956 which prohibited alienation of rural property by a tribal to a non-tribal, declared such transaction to be null and void. This Court while relying upon the decision in Amrendra Pratap Singh v. Tej Bahadur Prajapati [(2004) 10 SCC 65 : AIR 2004 SC 3782] has laid down that no right can be acquired by adverse possession on such inalienable property. Adverse possession operates on an alienable right. It was held that non- tribal would not acquire a right or title on the basis of adverse possession.
30. This Court in Amrendra Pratap, ((2004) 10 SCC
65 : AIR 2004 SC 3782) (supra) has laid down that the expression 'transfer' would include any dealing with the property when the word 'deal with' has not Page 33 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined been defined in the statute.Dictionary meaning as the safe guide can be extended to achieve the intended object of the Act. The transaction or the dealing with alienable property to transfer title of an aboriginal tribe and vesting the same in non-tribal was construed as transfer of immovable property. Extending the meaning of the expression 'transfer of immovable property' would include dealing with such property as would have the effect of causing or resulting in transfer of interest in immovable property. When the object of the legislation is to prevent a mischief and to confer protection on the weaker sections of the society, the court would not hesitate in placing an extended meaning, even a stretched one, on the word, if in doing so the statute would succeed in attaining the object sought to be achieved. When the intendment of the Act is that the property should remain so confined in its operation in relation to tribals that the immovable property to one tribal may come but the title in immovable property is not to come to vest in a non-tribal the intendment is to be taken care by the protective arm of the law and be saved from falling prey to unscrupulous devices, and this Court concluded any transaction or dealing with immovable property which would have the effect of extinguishing title, possession or right to possess such property in a tribal and vesting the same in a nontribal, would be included within the meaning of 'transfer of immovable property'.
65. In Ram Karan v. State of Rajasthan [(2014) 8 SCC 282], the Supreme Court has laid down that the transfer of holding by a member of Scheduled Caste to a member not belonging to the Scheduled Caste by virtue of Section 42 of the Rajasthan Tenancy Act is forbidden and unenforceable. Such a transaction is unlawful even under Section 23 of the Contract Act and an agreement or such transfer would be void under Section 2(g) of the Contract Act. This Page 34 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined principle of law, as explained by the Supreme Court in Ram Karan (supra) fortifies the view taken by the learned Single Judge of this Court in the case of Hardik Harshadbhai Patel (supra). Keeping this principle in mind, I have arrived to the conclusion that the word "invalid" or the word "void", so far as the Section 43 of the Tenancy Act is concerned, would not make by difference. The true test is whether the transaction is unlawful, as opposed to the public policy. Whether such transaction would defeat the very object with which such restriction has been imposed in Section 43 of the Tenancy Act."
97 With reference to the provisions of Section 43 of the Tenancy Act, it was observed in Paragraph "67" therein that:-
"67. The language of Section 43 of the Tenancy Act is plain and simple. There is no absolute bar or an embargo as regards the transfer of a new tenure land or entering into an agreement of sale with respect to a new tenure land. Section 43 only says that the parties cannot enter into such agreement without the prior permission of the Collector and if the parties have entered into such agreement without the permission of the Collector, such transaction would be invalid. Thus, it is for the Collector to decide whether permission should be granted or not. It is for the Collector to consider whether such transfer would be in consonance with the Constitutional Scheme in Part IV of the Directive Principles. The Collector may also consider whether the agreement is void under Section 23 of the Contract Act as opposed to the public policy. Before the permission is given, the Collector is enjoined, by operation of Article 46 of the Constitution, to inquire whether such alienation is void under law or violates the provisions of the Constitution and Page 35 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined whether the permission could be legitimately given. In that behalf, the competent authority is enjoined to look to the nature of the property, subject matter of the proposed conveyance and preexisting rights flowing thereunder and whether such alienations or encumbrances violate the provisions of the Constitution or the law. If the answer is in the positive, then without any further inquiry the permission straightway would be rejected. Even in case the permission is granted, it would be decided on the anvil of the relevant provisions of the Constitution and the law [Murlidhar Dayandeo Kesekar v. Vishwanath Pandu Bardu reported in AIR 1995 SCW 2224]. "
98 It was further held in Paragraph "84" that:-
"84. Thus, having regard to the aforesaid discussion, I have reached to the conclusion that the transaction between the parties being hit by Section 43 of the Tenancy Act and being opposed to the public policy, as explained under Section 23 of the Contract Act, is not enforceable in law. There is a clear bar for entering into an Agreement to Sell of the granted lands without previous the permission of the Collector. If an agreement is entered into in respect of the granted land in violation of Section 43, it is invalid. Section 23 of the Indian Contract Act, 1872 bars the enforcement of a contract if it is forbidden by law. An agreement offending a statute or public policy or forbidden by law is not merely void but it is invalid from nativity. The term law' in this Section must be understood in the sense of the term explained in Article 13(3) of the Constitution. Thus, what is done in contravention of the provisions of any law cannot be made the subject matter of an action.Page 36 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined If the contract is expressly prohibited by law, it is void-ab-initio and cannot be enforced. In the circumstances, Courts cannot grant a decree for specific performance subject to the permission, which may be obtained by one of the parties from the Collector. I am of the view that the suit filed by the plaintiff for enforcement of the invalid agreement cannot be entertained by the Civil Court."
99 The decision of the Apex Court in the case of Sita Ram (supra), has been noted in paragraph Nos. "75" and "85" therein as under: -
"75. The Supreme Court in the case of Sita Ram v. Radha Bai reported in AIR 1968 SC 534 has very succinctly explained the law on the subject. I may quote the relevant observations as under:
"12. The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud is expressed in the maxim In pari causa potior est conditio possidentis. But as stated in Anson's 'Principles of the English Law of Contracts', 22 nd Ed., p. 343:"there are exceptional cases in which a man will be relieved of the consequences of an illegal contract into which he has entered-cases to which the maxim does not apply They fall into three classes (a) where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in furtherance of it (b) where the plaintiff is not in pari delicto with the defendant : (c) where the plaintiff does not have to rely on the illegality to make out his claim."Page 37 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined
13. There was in this case no plea by the plaintiff t hat there was any illegal purpose in entrusting the jewellery to Lachhmi Narain. It was also the plaintiffs case that Gomti Bai knew that the jewellery in dispute was entrusted by the plaintiff to Lachhmi Narain, and if the averments made in the plaint are to be the sole basis for determining the contest, Gomti Bai did not suffer any loss in consequence of the entrustment. Assuming that the Trial Court was competent without a proper pleading by the appellant and an issue to enter upon an enquiry into the question whether the plaintiff could maintain an action for the jewellery entrusted by her to Lachhmi Narain, the circumstances of the case clearly make out a case that the parties were not "in pari delicto". It is settled law that "Where the parties are not in pari delicto, the less guilty party may be able to recover money paid, or property transferred, under the contract. This possibility may arise in three situations. First, the contract may be of a kind made illegal by statute in the interests of a particular class of persons of whom the plaintiff is one.* * * Secondly, the plaintiff must have been induced to enter into the contract by fraud or strong pressure.
*** Thirdly, there is some authority for the view that a person who is under a fiduciary duty to the plaintiff will not be allowed to retain property, or to refuse to account for moneys received, on the ground that the property or the moneys have come into his hands as the proceeds of an illegal transaction" See Anson's 'Principles of the English Law of Contract' p.
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346..."
xxx xxx xxx xxx xxx xxx
85. The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality has been very succinctly explained by the Supreme Court in its decision in the case of Sita Ram (supra) by applying the maxim in pari causa potior est conditio possidentis. The Supreme Court, by referring to Anson's 'Principles of the English Law of Contracts', explained that there are exceptional cases in which a person would be relieved of the consequences of an illegal contract into which he has entered and the above referred maxim is not applied. The Supreme Court classified the three exceptional circumstances : (a) where the illegal purpose has not yet been substantially carried into effect, (b) where the plaintiff is not in pari delicto with the defendant, and (c) where the plaintiff does not have to rely on the illegality to make out his claim. This principle explained by the Supreme Court in Sita Ram (supra) applies on all fours to the case on hand. The plaintiff could be said to be in pari delicto with the defendants and he has no other option, but to rely upon the invalid agreement of sale for the purpose of seeking the discretionary relief of specific performance. It is not the case of the plaintiff that he had been induced to enter into the contract by fraud or strong pressure."
100 In the case of Waman Shriniwas Kini36 the Apex Court was dealing with the question as to whether the Court would be enforcing an Page 39 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined agreement, which is prohibited and made illegal by the statutory provisions, turning down the plea of waiver on the agreement of the opponent therein that under the agreement between him and the respondent, he was entitled to sub-let the premise. It was held that the plea of waiver cannot be raised because as a result of giving effect to that plea, the Court would be enforcing an illegal agreement and, thus, contravening the statutory provisions of Section 15, based on the public policy and produce the very result which the Statute prohibits and makes illegal. By enforcing the contract, the consequence will be the enforcement of an illegality and infraction of the statutory provisions, which cannot be condoned by any conduct or agreement of parties.
101 The Full Bench of the Allahabad High Court in Nutan Kumar and others (supra), has considered the question as to whether the suit for ejectment and recovery of arrears of rent and damages etc. based on a lease agreement which is unenforceable in the eye of law, can be maintained by the lessor against the lessee. It was observed in paragraphs "97","98","99","100" and "101" that:-
"97. Now coming to the second question as to whether such a lease as aforesaid is enforceable and a suit of ejectment and recovery of arrears of rent and damages etc. based on such lease can be maintained by the lessor against the lessee, the following propositions of law enunciated by Sir William Anson in his book 'Law of Contract' (26th Edn. Edited by A. G. Guest), may usefully be quoted below as guiding principles on the question :
"It is scarcely surprising that the Courts will refuse to enforce an illegal agreement at the suit of a person who is himself implicated in the illegality. But it is also a rule of English law Page 40 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined that money or property transferred by such a person cannot be recovered. In the colourful words of Wilmot C.J. : 'All writers upon our law agree in this, no polluted hand shall touch the pure fountains of justice. Whoever is a party to an unlawful contract, if he hath once paid the money stipulated to be paid in pursuance thereof, he shall not have the help of a court to fetch it back again.'This principle is expressed in the maxim in pari delicto potior est conditto defendant is."
98. The principle expressed in the maxim popularly known as 'pari delicto' is, however, subject to following among other exceptions under which the man will be relieved of the consequences of an illegal contract into which he has entered
(a) Where the plaintiff seeking recovery of the property given to the defendant in an illegal transaction has withdrawn from a transaction and approached the court before the illegal purpose of the transaction can be executed in whole or in part;
(b) Where the plaintiff is not in pari delicto with the defendant;
(c) Where the plaintiff though in pari delicto with the defendant suffered from any incapacity of the nature which vitiates a contract or was as a matter of fact forced to be party to the illegality by reason of the compulsions of social or economic inequality having a bearing upon the bargaining capacities of the parties; and,
(d) Where the plaintiff does not have to rely on the illegality to make out his claim.
99. The learned author has further stated the principle in the following words :
"There is yet one more factor which may defeat an ostensibly valid contract. It is that of illegality. Public policy imposes certain Page 41 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined limitations upon freedom of contract. Certain objects of contract are forbidden or discouraged by law; and though all other requisites for the formation of a contract are complied with, yet if these objects are in contemplation of the parties when they entered into agreement the law will not permit them to enforce any rights under it." (p. 292) "The nature and effects of statutory illegality may vary considerably. A statute may declare that a certain type of contract is expressly prohibited. There is then no doubt of the intention of the legislature that such a contract should not be enforced. What is done in contravention of the provisions of an Act of Parliament cannot be made the subject matter of an action." (p. 293)
100. Equally useful are the following views expressed on the point by Pollock and Mulla in their book 'On Indian Contract and Specific Relief Acts', I2th Edn. at p. 232 :
"If a contract is expressly or by necessary implication forbidden by statute or it is ex facie illegal or both parties know that though ex facie legal it can be performed by illegality or is intended to be performed illegally, the law will not help the plaintiffs in any way i.e. by direct or indirect enforcement of rights under the contract. And for this purpose both the parties are presumed to know the law. If expressly prohibited by law, the contract is void ab initio. If both parties have knowledge that a contract could not be carried out without a violation of the law, the contract would be un-enforceable. But if only one party has such knowledge the innocent party is not precluded because otherwise it would injure the innocent, benefit the guilty and put a premium on deceit. If a contract can be performed in one of two ways, Page 42 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined i.e. legally or illegally it is not an illegal contract though it is un-enforceable at the suit of a party who chooses it to perform illegally."
101. In Anson's Law of Contract (supra), it has also been propounded that where the plaintiff is not relying upon the illegal contract, he may sue the defendant for possession delivered to the latter under the illegal contract. To quote the learned Author -
"It is settled law that the ownership of property can pass under an illegal contract if the parties so intend, as in the case of goods sold to a buyer under an illegal contract of sale.
Where, however, only a limited interest is transferred, as under a contract of bailment or a lease, it is equally well established that the owner of the property can recover it from the bailee or lessee if he is not forced to found his claim on the illegal contract, but simply relies on his title to the property."
"This principle is extremely difficult of application since it is frequently hard to determine whether a plaintiff is relying upon his title, or upon the contractual provisions of title, orupon the contractual provisions of the illegal agreement. For example, it seems probable that a landlord can recover premises let to a tenant under an illegal agreement once the term of years has expired; but it is a matter of doubt whether he could recover them in the meantime under a covenant which provided for forfeiture for non-payment of rent. Would he be relying on his independent right of ownership, or (more probably) upon the contractual provisions of the illegal lease ?"Page 43 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined 102 The decision of the Apex Court in Waman Shirniwas Kini (supra) was considered in paragraph Nos. "102", "103","104","105" and "106" in the following manner:
"102. In Waman Sriniwas v. R. B. and Company, AIR 1959 SC 689, 'A' was the tenant for about 20 years in the premises known as 'Fida Ali Villa' situate at kalyan in Bombay. The building was purchased by 'R' who gave notice to 'A' to vacate as he wanted to construct a new building on the site of the old building. 'A' agreed to vacate and 'R' to let to him a portion of his new building. 'A' had four sub-tenants in the building aforesaid, three of them also shifted to the new premises which were let to 'A' by 'R'. The new premises was let to 'A' on certain agreement regarding sub-tenancy. 'R' Brought a suit for ejectment on the ground of non-payment of rent and subletting of premises. The defence of 'A' was that under the terms of lease, he had the right to sub-let the premises.
103. Section 15 of Bombay Hotel and Letting House Rent Control Act, 1947 prohibited sub-letting and made it unlawful for a tenant to assign or to transfer his interest in the premises let to him. It was held by Supreme Court that an agreement contrary to the provisions of Section 15 could be unenforceable as being in contravention of the express provisions of the Act which prohibited it; (2) that it was not permissible to any person to rely upon the contract.
104. While commenting on the maxim --'in pan delicto Eotiorest conditie posidentes' -- the Supreme Court in the above noted case observed as under :
"The maxim must not be understood as meaning that where a transaction is vitiated by illegality the person left in possession of goods after its completion is always and of necessity Page 44 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined entitled to keep them. Its true meaning is that where the circumstances are such that the court will refuse to assist either party, the consequence must, in fact, follow that the party in possession will not be disturbed."--(Per Du Paroq L. J. In Dow Makess Ltd. v. Barnet Instruments Ltd. 1945-1 K. B. 65, 72).
105. The Supreme Court further held :--
The first respondent in the present case did not call upon the court to enforce any agreement at all. When the instrument of lease was executed and possession given and sub-letting done it received its full effect; no aid of the court was required to enforce it. The respondent's suit for ejectment was not brought for enforcement of the agreement which recognised sub-letting but he asked the court to enforce the right of eviction which flows directly from an infraction of the Act (S. 15) and for which the Act itself provides a remedy. There is thus a manifest distinction between this case where the palintiff asked the court to afford him a remedy against one who by contravening Section 15 of the Act has made himself liable to eviction and those cases where the court was called upon to assist the plaintiff in an agreement the object of which was to do an illegal act. The respondent. is only seeking to enforce his rights under the statute and the appellant cannot be permitted to assert in a court of justice any right founded upon or growing out of an illegal transaction. "
--
106. The Supreme Court further held --"..... Whether Court would aid the appellant in enforcing a term of agreement which Section 15 of the Act declares to be illegal. By enforcing the contract the consequence will be Page 45 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined the enforcement of an illegality and infraction of a statutory provision ....."
103 The observation of the Apex Court in the case of Manna Lal Khetan (supra) was noted in the paragraph "107" as under:- "
107. The observations of the Supreme Court in Manna Lal Khetan, (1977) 2 SCC 424 : (AIR 1977 SC
536) (supra) at p. 430, para 20 may also be quoted usefully on the point under discussion.
"It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void. The legal maxim 'A' pactis provatorum publico juri non deroga- tur means that private agreements cannot alter the general law. Where a contract express or implies, is expressly or by implication forbidden by statute, no court can fend its assistance to give it effect. (See Mellis v. Shirley LB) What is done in contravention of the provisions of an Act of the legislature cannot be made the subject of an action."
104 In light of the above discussion, we find ourselves in complete agreement with the law laid down by this Court in Rameshbhai Chaturbhai Prajapati (supra) and Hasvantbhai Chhanubhai Dalal (supra) in holding that the agreement being unlawfully, barred by Section 43 of the Tenancy Act, 1948, in view of the specific bar contained about the execution of the agreement without previous sanction of the Collector/competent authority, is unenforceable in the eye of law. The reason being that the plaintiff would have no option, but to rely upon an illegal contract to make out his claim and the Courts will refuse an illegal agreement at the instance of a person, who is himself a party to the illegality.
Page 46 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined 105 We find ourselves in concurrence with the decision of the Division Bench in Ganpatlal Manjibhai Khatri (supra), wherein it is held that there is a total prohibition of even entering into an agreement in writing for the purpose of sale under Section 43 of the Tenancy Act, 1948. The Agreement to Sell entered into without the prior permission or sanction of the Collector cannot but be termed as invalid or void as the same was entered into without the prior permission or sanction of the Collector. The suit for specific performance of contract based on invalid Agreement to Sell, hit by Section 43 of the Tenancy Act, 1948, is not maintainable in law. If the agreement is rendered invalid under Section 43 of the Tenancy Act, 1948, such agreement is incapable of being specifically enforceable. If the Agreement to Sell itself is invalid, no decree for specific performance can be passed by the trial Court.
106 We are in concurrence with the observation of the Division Bench in Ganpatlal Manjibhai Khatri (supra) that the jurisdiction to order specific performance of a contract is based on the existence of valid and enforceable contract. Where valid and enforceable contract has not been made, the Court will not make a contract for them. The specific performance will not be ordered if the contract itself suffers from some defect, which makes the contract invalid or unenforceable.
107 In the case of Jayamma the question of interpretation of Section 61 of the Karnataka Land Reforms Act, 1961 fell for consideration before the Apex Court, in a matter wherein an application purported to be under Section 276 of the Succession Act, 1985 for grant of Letters of Administration had been filed on the basis of a will, which was converted into a suit and decreed by the trial Court holding that the testator executed the will with full Page 47 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined knowledge, having sound state of mind and it was not obtained by practicing fraud, misrepresentation or duress. In appeal, the High Court set aside the decree holding that the application for grant of Letters of Administration was not maintainable in view of Section 61 of the aforesaid Act, the subject matter of testament meant agricultural land with occupancy right could not have been assigned. Section 61 of the aforesaid Act provided for restriction on transfer of land of which the tenant has become occupant and reads as under:-
"61. Restriction on transfer of land of which tenant has become occupant. (1) Notwithstanding anything contained in any law, no land of which the occupancy has been granted to any person under this Chapter shall within fifteen years from the date of the final order passed by the Tribunal under sub-section (4) or sub-section (5) or sub-section (5-A) of Section 48-A be transferred by sale, gift, exchange, mortgage, lease or assignment; but the land may be partitioned among members of the holder's joint family.
(2) .......................
(3) Any transfer or partition of land in contravention of sub-section (1) shall be invalid and such land shall vest in the State Government free from all encumbrances and shall be disposed of in accordance with the provisions of Section 77."
108 The Apex Court, having discussed the construction of the provisions of Section 61 therein has held that the statutory embargo on transfer of land is stricter in a case where tenant has become occupant, than a land held by the tenant simpliciter. Sub-section (3) of Section 61 lays down that any Page 48 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined transfer of land in contravention of Sub-section (1) shall be invalid, whereupon the same shall vest in the State Government free from all encumbrances. The legislative intent that the land should not be allowed to go into the hands of a stranger to the family is, therefore, manifest. The tenor of Section 61 is that except partition amongst cosharers, no transfer of the property, in any manner, is permissible. It was, thus, held in paragraph No.21 as under:-
"21. It is not disputed that in view of the purport and object the Legislature sought to achieve by enacting the said provision the expression 'assignment' would include a Will."
6.6 Therefore, what is evident from the extract reproduced hereinabove is that the Full Bench dealt with the discussion in context of the term in the Contract Act being "invalid", "forbidden by law" and "void" as understood in context of the provisions of the Indian Contract Act. Perusal of paragraph 96 of the decision would indicate that, it set out the difference between void and illegal agreements. Relying on a decision in the case of Rajasthan Housing Board (supra), we find that the Hon'ble Supreme Court had the occasion to consider the provisions of the Rajasthan Tenancy Act. Before the Supreme Court was a case in context of the land Page 49 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined acquisition proceedings where parcels of lands were transferred by the scheduled castes Khatedars in favour of a person who was not a member of a scheduled caste.
The Supreme Court held that such a transfer was void ab initio. Para 26 of the decision in the case of Rajasthan Housing Board (supra), reads as under:
"26. In the instant case, the transaction is ab initio void that is right from its inception and is not voidable at the volition by virtue of the specific language used in section 42 of the Rajasthan Tenancy Act. There is declaration that such transaction of sale of holding "shall be void". As the provision is declaratory, no further declaration is required to declare prohibited transaction a nullity. No right accrues to a person on the basis of such a transaction. The person who enters into an agreement to purchase the same, is aware of the consequences of the provision carved out in order to protect weaker sections of Scheduled Castes and Scheduled Tribes. The right to claim compensation accrues from right, title or interest in the land. When such right, title or interest in land is inalienable to non-SC/ST, obviously the agreements entered into by the Society with the Khatedars are clearly void and decrees obtained on the basis of the agreement are violative of the mandate of section 42 of the Rajasthan Tenancy Act and are a nullity. Such a prohibited transaction opposed to public policy, cannot be enforced. Any other interpretation would be defeasive of the very intent and protection carved out under section 42 as per the mandate of Article 46 of the Constitution, in favour of the poor castes and downtrodden persons, included in the Schedules to Articles 341 and 342 of the Constitution of India.Page 50 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined
27. In State of Madhya Pradesh v. Babu Lal [(1977) 2 SCC 435] : (AIR 1977 SC 1718), the provisions contained in section 165(6) of M.P. Land Revenue Code, 1959 came up for consideration before this Court. The High Court directed the State to file a suit for declaring the decree null and void. The decision was set aside. It was held that the case was a glaring instance of violation of law as such the High Court erred in not issuing a writ. The decision of the High Court was set aside. The transfer which was in violation of proviso to section 165(6) transferring the right of Bhuswami belonging to a tribe, was set aside.
28. This Court in Lincal Gamango v. Dayanidhi Jena [(2004) 7 SCC 437 : AIR 2004 SC 3457] while considering the provisions of Orissa Scheduled Areas Transfer of Immovable Property (by Scheduled Tribes) Regulation, 1956 which prohibited alienation of rural property by a tribal to a non-tribal, declared such transaction to be null and void. This Court while relying upon the decision in Amrendra Pratap Singh v. Tej Bahadur Prajapati [(2004) 10 SCC 65 : AIR 2004 SC 3782] has laid down that no right can be acquired by adverse possession on such inalienable property. Adverse possession operates on an alienable right. It was held that non- tribal would not acquire a right or title on the basis of adverse possession.
30. This Court in Amrendra Pratap, ((2004) 10 SCC 65 : AIR 2004 SC 3782) (supra) has laid down that the expression 'transfer' would include any dealing with the property when the word 'deal with' has not been defined in the statute.Dictionary meaning as the safe guide can be extended to achieve the intended object of the Act. The transaction or the dealing with alienable property to transfer title of an aboriginal tribe and vesting the same in non-tribal Page 51 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined was construed as transfer of immovable property. Extending the meaning of the expression 'transfer of immovable property' would include dealing with such property as would have the effect of causing or resulting in transfer of interest in immovable property. When the object of the legislation is to prevent a mischief and to confer protection on the weaker sections of the society, the court would not hesitate in placing an extended meaning, even a stretched one, on the word, if in doing so the statute would succeed in attaining the object sought to be achieved. When the intendment of the Act is that the property should remain so confined in its operation in relation to tribals that the immovable property to one tribal may come but the title in immovable property is not to come to vest in a non-tribal the intendment is to be taken care by the protective arm of the law and be saved from falling prey to unscrupulous devices, and this Court concluded any transaction or dealing with immovable property which would have the effect of extinguishing title, possession or right to possess such property in a tribal and vesting the same in a nontribal, would be included within the meaning of 'transfer of immovable property'.
65. In Ram Karan v. State of Rajasthan [(2014) 8 SCC 282], the Supreme Court has laid down that the transfer of holding by a member of Scheduled Caste to a member not belonging to the Scheduled Caste by virtue of Section 42 of the Rajasthan Tenancy Act is forbidden and unenforceable. Such a transaction is unlawful even under Section 23 of the Contract Act and an agreement or such transfer would be void under Section 2(g) of the Contract Act. This principle of law, as explained by the Supreme Court in Ram Karan (supra) fortifies the view taken by the learned Single Judge of this Court in the case of Hardik Harshadbhai Patel (supra). Keeping this principle in mind, I have arrived to the conclusion Page 52 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined that the word "invalid" or the word "void", so far as the Section 43 of the Tenancy Act is concerned, would not make by difference. The true test is whether the transaction is unlawful, as opposed to the public policy. Whether such transaction would defeat the very object with which such restriction has been imposed in Section 43 of the Tenancy Act."
6.7 Reading thereof would indicate that in light of the specific bar under the Tenancy Act, the transaction of sale was void. The Supreme Court held that the right to claim compensation would accrue from the right, title or interest of the land and when the agreements entered into itself were clearly void and a nullity, such a transaction being opposed to public policy cannot be enforced. The transaction being null and void, the Supreme Court therefore held that the right to claim compensation would also not accrue. Reliance as is evident from para 99 of the decision of the Full Bench was based on a decision of the Supreme Court in the case of Sitaram Vs. Radha Bai & Ors., reported in AIR 1968 Supreme Court 534., which reads as under:
"99 The decision of the Apex Court in the case of Sita Ram (supra), has been noted in paragraph Nos.Page 53 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined "75" and "85" therein as under: -
"75. The Supreme Court in the case of Sita Ram v. Radha Bai reported in AIR 1968 SC 534 has very succinctly explained the law on the subject. I may quote the relevant observations as under:
"12. The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud is expressed in the maxim In pari causa potior est conditio possidentis. But as stated in Anson's 'Principles of the English Law of Contracts', 22 nd Ed., p. 343:"there are exceptional cases in which a man will be relieved of the consequences of an illegal contract into which he has entered-cases to which the maxim does not apply They fall into three classes (a) where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in furtherance of it (b) where the plaintiff is not in pari delicto with the defendant : (c) where the plaintiff does not have to rely on the illegality to make out his claim."
13. There was in this case no plea by the plaintiff t hat there was any illegal purpose in entrusting the jewellery to Lachhmi Narain. It was also the plaintiffs case that Gomti Bai knew that the jewellery in dispute was entrusted by the plaintiff to Lachhmi Narain, and if the averments made in the plaint are to be the sole basis for determining the contest, Gomti Bai did not suffer any loss in consequence of the entrustment.
Page 54 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Assuming that the Trial Court was competent without a proper pleading by the appellant and an issue to enter upon an enquiry into the question whether the plaintiff could maintain an action for the jewellery entrusted by her to Lachhmi Narain, the circumstances of the case clearly make out a case that the parties were not "in pari delicto". It is settled law that "Where the parties are not in pari delicto, the less guilty party may be able to recover money paid, or property transferred, under the contract. This possibility may arise in three situations. First, the contract may be of a kind made illegal by statute in the interests of a particular class of persons of whom the plaintiff is one.* * * Secondly, the plaintiff must have been induced to enter into the contract by fraud or strong pressure.
*** Thirdly, there is some authority for the view that a person who is under a fiduciary duty to the plaintiff will not be allowed to retain property, or to refuse to account for moneys received, on the ground that the property or the moneys have come into his hands as the proceeds of an illegal transaction" See Anson's 'Principles of the English Law of Contract' p. 346..."
xxx xxx xxx xxx xxx xxx Page 55 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined
85. The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality has been very succinctly explained by the Supreme Court in its decision in the case of Sita Ram (supra) by applying the maxim in pari causa potior est conditio possidentis. The Supreme Court, by referring to Anson's 'Principles of the English Law of Contracts', explained that there are exceptional cases in which a person would be relieved of the consequences of an illegal contract into which he has entered and the above referred maxim is not applied. The Supreme Court classified the three exceptional circumstances : (a) where the illegal purpose has not yet been substantially carried into effect, (b) where the plaintiff is not in pari delicto with the defendant, and (c) where the plaintiff does not have to rely on the illegality to make out his claim. This principle explained by the Supreme Court in Sita Ram (supra) applies on all fours to the case on hand. The plaintiff could be said to be in pari delicto with the defendants and he has no other option, but to rely upon the invalid agreement of sale for the purpose of seeking the discretionary relief of specific performance. It is not the case of the plaintiff that he had been induced to enter into the contract by fraud or strong pressure."
6.8 Reading of the aforesaid paras would indicate that where the parties are not in pari delicto, the less guilty party may be able to recover the money paid. However, where the party himself is aware of the illegality, on the Page 56 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined maxim of pari delicto, such a person cannot claim the relief of even compensation on being wronged at the hands of the plaintiff.
6.9 In paragraphs 140 to 142 of the decision of the Full Bench, the question of enforceability of the agreement hit by section 43 of the Tenancy Act has been dealt with.
Paras 140 to 142 of the Full Bench decision read as under:
"140 In the end, on the issue of grant of decree of specific performance of an Agreement to Sell which is contrary to the statutory provisions, we may refer to the decision of the Apex Court in Narayanamma (supra) wherein applying various tests, referring to the decision of the Apex Court in Kedar Nath Motani39 it was held that if the decree is granted in favour of the plaintiff on the basis of an illegal agreement which is hit by a statute, it will be rendering active assistance of the Court in enforcing an agreement which is contrary to law. A ticklish question has also arisen in the situation of the said case where both the parties were common participators in the illegality. Referring to the opinion of Hidayatulla, J in Kedar Nath Motani (supra) and the opinion of Gajendragadkar, J in Immani Appa Rao40 it was noted that where the claim of the plaintiff is entirely based upon an agreement which is hit by the statutory provisions, although illegality is not pleaded by the defendant nor sought to be relied upon by him in defence, yet the Court itself, upon the illegality appearing from Page 57 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined the evidence will take notice of it and will dismiss the action on the doctrine ex turpi causa non oritur actio, i.e. no polluted hand shall touch the pure fountain of justice.
141 It was held therein that as against rendering active assistance of the Court in enforcing an agreement which is contrary to law, if the balance is tilted towards the defendant, no doubt that they would stand benefited even inspite of they committing illegality, however, in such course, what the Court would be doing is only rendering an assistance which is wholly of a passive character. As held by Gajendragadkar, J in Immani Appa Rao (supra), the first course would be clearly and patently inconsistent with the public interest, whereas the latter course is lesser injurious to public interest than the former.
142 The position of law is, thus, clear that any transfer in violation of the statutory provision being invalid or illegal in the eye of law cannot be enforced by the Civil Court by granting a decree of specific performance on conditional basis, even if the defendant is benefited to some extent by the order of the Civil Court. The arguments of the learned Advocates that the defendant-vendor having pocketed the sale consideration cannot be permitted to claim for dismissal of the suit on the principle that "No act of Court can prejudice a party", does not merit consideration."
6.10 The aforesaid paragraphs of the decision of the Full Bench would indicate that the Full Bench positively held that any transfer which is in violation of the statutory provisions being invalid, cannot be enforced by a Civil Page 58 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Court by granting a decree of specific performance. Even the argument of the learned counsels of having pocketed the sale consideration cannot be permitted in light of dismissal of the suit on the principle that "No act of the Court can prejudice a party". In light of this, the submission of the learned Senior Advocate Mr.Vyas, that the Full Bench had not dealt with the issue of the alternative relief of compensation or damages cannot be accepted. It is in light of this, that the submission of the learned Counsel for the appellant that the plaintiff's plaint cannot be rejected in part cannot be accepted in light of the fact that the alternative relief of compensation arose itself out of a contract which was held to be incapable and invalid to be performed of which, the plaintiff and the defendants were very much aware of, which therefore leads us to believe that on the principle of pari delicto and in light of the decision of the Supreme Court in the case of Sita Ram (supra), the contention that the plaint was rejected in part also cannot be accepted.
Page 59 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined 6.11 On the argument of the provisions of Sec.65 , 60 and 70 of the Contract Act, it will be in the fitness of things to reproduce paragraphs 6 to 9 of the decision of the Supreme Court in the case of Kuju Collieries (supra).
"6 We are of the view that s. 65 of the Contract Act cannot help the plaintiff on the facts and circumstances of this case. Section 65. reads as follows :
"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".
The section makes a distinction between an agreement and a contract. According to s. 2 of the Contract Act an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of the section speaks of an agreement being discovered to be void it means that the agreement is not enforceable and is, therefore, not a contract. It means that it was void. It may- be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which was originally enforceable and was, therefore, a contract,. becomes void due to subsequent happenings. In both these cases any person who has received any advantage under such agreement or contract is bound to restore such Page 60 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined advantage, or to make compensation for it to the person from whom he received it. But where even at the time when the agreement is entered into both the parties knew that it was not lawful and, therefore, void, there was no contract but only an agreement and it is not a case where it is discovered to be void subsequently. Nor is it a case Of the contract becoming void due to subsequent happenings. Therefore, s. 65 of the Contract Act did not apply.
7 The Privy Council in its decision in Harnath Kaur v. Inder Bahadur Singh (1923, 50 f. A. 69, 75-
76) observed:
The section deals with (a) agreements and (b) contracts. The distinction between them is apparent by s. 2; by clause (c) every set of promises forming the consideration for 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 .lm15 be void. An agreement therefore, discovered to be void is one discovered 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."
8 A full Bench of five Judges of the Hyderabad High Court in Budhulal v. Deccan Banking Company (AIR 1955 Hyd. 69) speaking through our brother, Jaganmohan Reddy J., as he then was, referred with approval to these observations of the Privy Council. They then went on to refer to the observations of Page 61 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined Pollock and Mullah in their treatise on Indian Contract and Specific Relief Acts, 7th Edn. to the effect that s. 65, Indian Contract Act does not apply to agreements which are void under s. 24 by reason of an unlawful consideration or object and there being no other provision in the Act under which money paid for an unlawful purpose may be recovered back, an analogy of English law will be the best guide. They then referred to the reasoning of the learned authors that if the view of the Privy Council is right namely that agreements discovered to be void' apply to all agreements which are ab- initio void including agreements based on unlawful consideration, it follows that the person who has paid money or transferred property to another for .an illegal purpose can recover it back from the transferee under this section even if the illegal purpose is carried into execution and both the transferor and transferee are in pari delicto. The Bench then proceeded to observe:
"In. our opinion, the view of the learned authors is neither supported by any of the subsequent Privy Council decisions nor is it consistent with the natural meaning to be given to the provisions of S. 65. The section by using the words 'when an agreement is discovered to be void' means nothing more nor less than:
when the plaintiff comes to know or finds out that the agreement is void. The word 'discovery' would imply the preexistence of something which is subsequently found out and it may be observed that s. 66, Hyderabad Contract Act makes the knowledge (11m) of the agreement being void as one of the pre- requisites for restitution and is used in the sense of an agreement being discovered to be void. If knowledge is an essential requisite even an agreement ab-initio void can be discovered to be void subsequently. There may be cases Page 62 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined where parties enter into an. agreement honestly thinking that it is a perfectly legal agreement and where one of them sues the other or wants the other to act on it, it is their. that he may discover it to be void. There is nothing specific in s. 65 Indian Contract Act or its corresponding section of the Hyderabad Contract Act to make it inapplicable to such cases.
A person who, however, gives money for an unlawful purpose knowing it to be so, or in such circumstances that knowledge of illegality or unlawfulness can as a finding of fact be imputed to him the agreement under which the payment is made cannot on his part be said to be discovered to be void. The ,criticism that if the aforesaid view is right then a person who has paid money or transferred property to another for illegal purpose can recover it back from the transferee under this Section even if the illegal purpose is carried into execution, notwithstanding the fact that both the transferor and transferee are in pari delicto, in our view, overlooks the fact that the courts do not assist a person who comes with unclean. hands. In such cases, the defendant possesses at,. advantage cover the plaintiff- in pari delicto potior est condition defendentio.
Section 84, Indian Trust Act however has made an exception in a case where the owner of property transfers it to another for illegal purpose and such purposes is not carried it into execution or the transferor is not as guilty as the t ransferee or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law the transferee must hold the property for the benefit of the transferor".Page 63 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024
NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined This specific provision made by the legislature cannot be taken advantage of in derogation of the principle that s. 65 Contract Act in applicable where the object of the agreement was illegal to the knowledge of both the parties at the time it was made. In such a case the agreement would be void ab- initio and there would be no room for the subsequent discovery of that fact,,.
We consider that this criticism as well as the view taken by the Bench is justified. It has rightly pointed out that if both the transferor and transferee are in pari delicto the courts do not assist them.
9 A Division Bench of the Andhra Pradesh High Court in its decision in Sivaramakrisnaiah v. Narahari Rao (AIR 1960 AP 186 held that "In order to invoke section 65 the invalidity of the contractor agreement should be discovered subsequent to the making of it. This cannot be taken advantage of by parties who knew from the beginning the illegality thereof. It only applies to a case where one of the parties enters into an agreement under the belief that it was a legal agreement, i.e. without the knowledge that the agreement is forbidden by law proposed to public policy and as such illegal. The effect of section 65 is that in such a situation, it enables a person not in pari delicto to claim restoration since it is not based on an illegal contract but dissociated from it. That is permissible by reason of the section because the action is not founded on dealings which are contaminated by illegality. The party is only seeking to be restored to the status quo ante. Section 65 also does net recognise the distinction between a contract being illegal by reason of its being opposed to public policy or morality or a contract void for other reasons. Even agreement the performance of which is attended with penal consequences, are not Page 64 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined outside the scope of section 65. At the same time Courts will not render assistance to persons who induce innocent parties to enter into contracts of that nature by playing fraud on them to retain the benefit which they obtained by their wrong". They also referred with approval to the earlier decision of the Hyderabad High Court in Budhulal v. Deccan Banking Co. Ltd. (supra)."
6.12 Reading of the aforesaid decision of the Supreme Court would indicate that a person who gives money for an unlawful purpose knowing it to be so and in such circumstances knowing of the illegality in the unlawfulness can as a finding of fact be imputed with the knowledge of the fact that such an agreement which he had entered into was illegal. He therefore cannot be entitled to say that he should be refunded the money arising towards damages or compensation for a transaction which was void and illegal. The Supreme Court held that the provisions of Sec.65 and 70 made by the legislature cannot be taken advantage of where the object of the agreement was illegal to the knowledge of both the parties at the time it was made. It is a case here that it is not on a subsequent discovery that the plaintiff Page 65 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined came to know of the agreement being illegal. With open eyes as it is evident from the plaint itself it was the case of the defendant that the land in question was a restricted tenure land and would not therefore be alienable without previous permission of the Collector. Having done so, it will not lie on the face of the plaintiff now to plead for an alternative relief of compensation and damages when he was pari delicto to the contract itself. It will be in the fitness of things to reproduce para 50 of the decision in the case of Katta Sujata (supra), which deals with the nature of specific relief Act. Para 50 accordingly reads as under:
"50 While discussing the nature of the Specific Relief Act, in the aforesaid case, this Court had observed as under:
"16. Injunction is a form of specific relief. It is an order of a court requiring a party either to do a specific act or acts or to refrain from doing a specific act or acts either for a limited period or without limit of time. In relation to a breach of contract, the proper remedy against a defendant who acts in breach of his obligations under a contract, is either damages or specific relief. The two principal varieties of specific relief are, decree of specific performance and the injunction (See David Bean on Injunctions). The Specific Relief Act, 1963 was intended to Page 66 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined be "an Act to define and amend the law relating to certain kinds of specific reliefs". Specific relief is relief in specie. It is a remedy which aims at the exact fulfilment of an obligation. According to Dr. Banerjee in his Tagore Law Lectures on Specific Relief, the remedy for the nonperformance of a duty are (1) compensatory, (2) specific. In the former, the court awards damages for breach of the obligation. In the latter, it directs the party in default to do or forbear from doing the very thing, which he is bound to do or forbear from doing. The law of specific relief is said to be, in its essence, a part of the law of procedure, for, specific relief is a form of judicial redress. Thus, the Specific Relief Act, 1963 purports to define and amend the law relating to certain kinds of specific reliefs obtainable in civil courts. It does not deal with the remedies connected with compensatory reliefs except as incidental and to a limited extent. The right to relief of injunctions is contained in Part III of the Specific Relief Act. Section 36 provides that preventive relief may be granted at the discretion of the court by injunction, temporary or perpetual. Section 38 indicates when perpetual injunctions are granted and Section 39 indicates when mandatory injunctions are granted. Section 40 provides that damages may be awarded either in lieu of or in addition to injunctions. Section 41 provides for contingencies when an injunction cannot be granted. Section 42 enables, notwithstanding anything contained in Section 41, particularly Clause (e) providing that no injunction can be granted to prevent the breach of a contract the performance of which would not be specifically enforced, the granting of an injunction to perform a negative covenant. Thus, the power to grant injunctions by way of specific relief is Page 67 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined covered by the Specific Relief Act, 1963."
However, the conclusion in the above paragraph, taken in isolation, would not support the final outcome in the aforesaid case, wherein it was held that an injunction order granted under Section 9 of the Arbitration and Conciliation Act would involve consideration of settled principles under the Code of Civil Procedure or the Specific Relief Act. It was nowhere stated in the aforesaid case that the Specific Relief Act of 1963 stricto sensu provided for only procedural mechanism. We find it difficult to read the aforesaid case in the manner alluded to by the High Court."
6.13 In light of the aforesaid, we are of the opinion that while dealing with the question of maintainability of the suit for specific performance, the Full Bench in the decision of Shaikh Ismail (supra) did deal with the ancilliary question of the alternative relief of damages and compensation as is set out from the relevant paragraphs of the decision. Even otherwise, as held by Kuju Collieries (supra), considering the definition of "Contract", as defined in Sec. 2(h) of the Contract Act, when it is clearly found that an agreement which is unenforceable in law can be said to be void and therefore the present case being a case where the new tenure land Page 68 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024 NEUTRAL CITATION C/FA/2346/2024 ORDER DATED: 10/07/2024 undefined was a subject matter of the Agreement to Sell which was in absolute contravention to the provisions of Sec.43 of the Tenancy Act and of which the plaintiff himself was very much aware at the inception and it was not a case of a subsequent discovery of the fact, he was clearly dis-
entitled to claim even the alternative relief of compensation of damages particularly considering that both the parties were pari delicto and therefore the Court cannot come to the assistance of such a person who was knowingly privy to such an illegality.
7 For the aforesaid reasons therefore, we find no merit in the appeal and the appeal is accordingly dismissed with no orders as to cost.
In view of dismissal of the main appeal, civil application also stands disposed of, accordingly.
(BIREN VAISHNAV, J) (NISHA M. THAKORE,J) BIMAL Page 69 of 69 Downloaded on : Thu Jul 11 20:57:49 IST 2024