Andhra HC (Pre-Telangana)
Khaja Moinuddin Khan And Others vs S.P. Ranga Rao And Others on 1 October, 1999
Equivalent citations: 2000(2)ALD461, 2000(2)ALT596, AIR 2000 ANDHRA PRADESH 344, (2000) 2 ANDHLD 461 (2000) 2 ANDH LT 596, (2000) 2 ANDH LT 596
Author: J. Chelameswar
Bench: J. Chelameswar
JUDGMENT
1. Aggrieved by the judgment and decree in OS No. 132 of 1982 dated 28-12-1983 on the file of the Additional Chief Judge, City Civil Court-cum Additional Special Judge for SPE and ACB cases, Hyderabad, the first defendant preferred this appeal.
2. The appellant herein and the respondent Nos.2 to 5 are the owners of the plaint schedule property. The appellant is the manager of the property. It appears that there were some legal proceedings pending against the property, including proposals for acquisition of the schedule land by the A.P. Housing Board. For the purpose of conducting the said litigation, the appellant approached the first respondent-plaintiff for a loan of Rs.20,000/-. The first respondent agreed to lend the money on certain terms evidenced by Ex.A1, a registered agreement. It can be gathered from Ex.A1 agreement that various proceedings mentioned therein are pending against the suit schedule property. The relevant portion of the agreement for the purpose of this case reads as follows:
"Whereas the party of the first part offered to the party of the second part the due payment of a sum equivalent to 40% (forty per cent) of the total compensation that will be paid and be received for the lands bearing Survey Nos.47, 48, 49 (and extent of Ac. 15-24 guntas) situate in Madannapeta village, from the compensation first realised in respect of any of the items of the lands aforesaid from the A.P. Housing Board in pursuance of the award passed in the said claim, in consideration of the party of the second part advancing to the part of the first part the sum of Rs....."
It is also further stipulated in the agreement as follows:
"The parties of the first and second parts hereby agree that if for any reason the proceedings for the acquisition of the lands aforesaid under the Land Acquisition Act are dropped, the lands shall be sold by private treaty and the party of the second part shall be paid out of the amounts realised by the sale or sales of any of the said lands the equivalent sum of the value of Ac.I5-24 guntas in addition to the refund of Rs.20,000/- (Rs.Twenty thousand only) advanced by the party of the second part to the party of the first part as stated above".
Complaining that the terms of the above mentioned agreement have not been complied with by the appellant, the suit was instituted by the first respondent herein with the following prayer:
To grant
(a) a decree for Rs.39,249-00 against the defendants with further interest at 12% per annum from 30-10-1981 till the date of payment and costs;
(b) adecree for rendition of compensation or sale proceeds of the plaint schedule lands and for payment of 40% of the same less interest of Rs.23,042-50 claimed above.
(c) for sale of the plaint schedule charged lands for realisation of the decretal amount and costs under preliminary and final mortgage decree and for personal decree against the defendants, if the plaint schedule lands do not exist or if the sale proceeds of the same are not sufficient to meet the decretal amount;
(d) for such other relief or reliefs as the Hon'ble Court deems fit and proper under the circumstances of the case.
The appellant and the other respondent Nos.2 to 5, who are the defendants in the lower Court, contested the suit. The appellant admitted part payment to the extent of Rs.2,000/- and denied the receipt of the balance of Rs.18,000/-. The other defendants denied any knowledge of the agreement, as they were not signatories to the agreement.
3. On the above mentioned pleadings, as many as 8 issues were framed.
4. The trial Court decreed the suit in part holding that the first respondent is entitled to recover a sum of Rs.15,570/-from the appellant herein and is also entitled to interest at 12% per annum with effect from various dates of payments, proved to have been made by the first respondent. The trial Court further directed the appellant herein to deposit the decretal amount within a period of six months from the date of the decree and in default, to realise the decretal amount by sale of the suit schedule property. As against defendant Nos.2 to 5 the suit was dismissed. Aggrieved by the said judgment and decree, the present appeal is filed by the first defendant.
5. A very reading of Ex.Al agreement, indicates that it is champeritous in nature. Therefore, the learned Counsel were requested to address their arguments on that issue. However, the teamed senior Counsel Sri J.V. Suryanarayana Rao, appearing for the first respondent argued that, that argument was neither raised in the lower Court nor was any issue framed to that effect, and therefore, it may not be permissible for this Court to go into that aspect.
6. I am unable to agree with the submission made by the learned Counsel appearing for the first respondent. It is a settled principle of law, that it is a matter of public policy, that Courts will not assist the plaintiff to enforce an illegal contract. The Division Bench of this Court in Kotharaju Narayana Rao v. Tekumalla Ramachandra Rao, AIR 1959 AP 370, held that:
"When it is apparent on the face of a contract that it is unlawful, it is the duty of the Judge himself to take an objection, and that too, whether the parties take or waive the objection. It is therefore, open to this Court even without a pleading to consider the question whether the agreement relied on or proved in the case is immoral."
7. Therefore, the question is whether the contract is illegal. Section 23 of the Contract Act reads as follows:
23. The consideration or object of an agreement is lawful, unless-
it is forbidden by law; or is of such a nature that, if permitted, if would defeat 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 is 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.
8. It can be seen from the above that every agreement of which the object or consideration is unlawful is void agreement.
9. Agreements by which the stranger advance money for the maintenance of litigation with a view to obtain an unconscionable gain are called champertous agreements. Such agreements are illegal in English Law. The learned Counsel for the respondent, however, brought to my notice that there is a distinction between English Law and Indian Law on the subject. In this regard, the learned Counsel drew my attention in a case Chedambara Chetly v. Renga Krishna Muthu Vira Purchaiya Naickar, Zemindar of Marungapuri, Vol.1 Indian Appeal 241. Their Lordships of the Privy Council while dealing with this aspect at page No.264 of the said judgment held as follows:
"With respect to the paw of champerty or maintenance, it must be admitted, and indeed it is admitted in many decided cases, that the law in India is not the same as it is in England. The statute of champerty, being part of the statute law of England, has of course no effect in the mofussil of India; and the Courts of India do admit the validity of many transactions of that nature, which would not be recognised or treated as valid by the Courts in England. On the other hand, the cases cited show that the Indian Courts will not sanction every description of maintenance. Probably the true principle is that stated by Sir Barnes Peacock in the course of the argument, viz., that administering, as they are bound to administer, justice according to the broad principles of equity and good conscience, those Courts will consider whether the transaction is merely the acquisition of an interest in the subject of litigation bona fide entered into or whether it is an unfair or illegitimate transaction got up for the purpose merely of spoil, or of litigation, disturbing the peace of families, and carried on from a corrupt or other improper motive".
10. In Ram Coomar Coondoo v. Chunder Canto Mookerjee, Vol. IV IA 23, Their Lordships of the Privy Council while recognising that champertous agreements are void in England as they are contrary to public policy, however held, that principle is not applicable in toto to India. On consideration of various authorities, their Lordships held that:
"Their Lordships think it may properly be inferred from the decisions above referred to and especially those of this Tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property; if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.
But agreements of this kind ought to be carefully watched, and when found to be extortionate and unconscionable, so as to be inequitable against the party; or to be made, not with the bona fide object of assisting a claim believed to be just, and of obtaining a reasonable recompense therefor, but for improper objects, as for the purpose of gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy - effect ought not to be given to them".
11. From the above authorities it can be seen that a champertous nature of an agreement by itself does not render the agreement void, and as far as India is concerned, the Courts are bound to scrutinise the terms of the agreement before extending the authority of the judicial branch of the State for enforcement of such agreements. In Harilal Nathalal Talati v. Bhailal Pranlal Shah, AIR 1940 Bom. 143, the Division Bench of the Bombay High Court while dealing with an agreement, were a person agreed to give half share of the property to the financier valued at Rs.30,000/- from such property as he might get whether by a suit or by private settlement or in any other manner from his father's estate, held that "that the agreement was extortionate and unconscionable and opposed to public policy." In Lala Ram Sarup v. Court of Wards through Deputy Commissioner, Delhi, AIR 1940 PC 19, it is held that:
"Though it is not clear conclusive, the proportion to be retained by the claimant is an important matter to be considered when judging of the fairness of a bargain made....."
12. A Division Bench of this Court in Nuthaki Venkataswami v. Kalia Nagi Reddy, AIR 1962 AP 457, dealing with this issue while following the case (supra) held that:
"All agreement which provided that the financier should get 3/4th of share cannot be held to be a fair and reasonable gain".
13. Similarly a single Judge of the Allahabad High Court in Babit Ram v. Ram Charon Lal, AIR 1934 All. 1023, while dealing with an agreement provided for the financier to obtain 50% of the decretal amount held that "the suit was opposed to public policy".
14. In view of the legal position discussed above, the agreement in question, which provided for the payment of 40% to the first respondent herein of the total compensation to be paid to the suit schedule land in case of their acquisition or in the alternative provided for sale of the suit schedule property by private negotiations and payment of 40% of all the proceeds of such sale in addition to the money agreed to be advanced under agreement to the appellant herein, is in my view, clearly an unconscionable bargain and the agreement is extortionate in nature.
15. However, the learned Counsel for the respondent argued, placing reliance on Vatsavaya Venkata Jagapati v. Poosapati Venkatapati, Vol. 52, IA 1, that even if the agreement. Ex.Al, is void on account of its being opposed to public policy, the respondent is still entitled to atleast recover the amount advanced by him. It was a case where the appellant therein had advanced money under an agreement for the purpose of conducting a suit and by the said agreement a charge was created on the probable of decretal amount. Their Lordships held that the financier was entitled for such a declaration. It must be noticed that the financier was not claiming any undue benefit from the litigation and was only trying to recover the amount advanced under the agreement. In the circumstances, it cannot be said that the agreement was champertous in nature and therefore, in my view, the said decision cannot be invoked to support the case of the respondent herein.
16. The learned Counsel for the respondent however argued that even if this Court comes to the conclusion that the agreement covered under Ex. A1 is champertous in nature, the respondent is entitled to recover the amount actually advanced by him, as that part of the claim is severable from the rest of the terms of the agreement under Ex.Al.
17. In my view, this argument must fail for two reasons.
18. In view of Section 23 of the Contract Act, the agreement is voidab initio and it cannot be looked into for any purpose. If the suit is a simple suit for recovery of money, which was advanced, (there is some dispute about the actual amount advanced). The suit is admittedly barred by limitation.
19. For all the above mentioned reasons, the judgment and decree of the trial Court is set aside. The appeal is allowed. But in the circumstances of the case, there shall be no order as to costs.