Delhi District Court
Madhu Jaiswal vs Sweety Verma on 6 September, 2024
Suit No. 240/21 1
IN THE COURT OF SH. DIVYANG THAKUR, LD. DJ-03, SOUTH-
WEST DISTRICT, DWARKA COURTS, DELHI
Civil Suit No: 240/2021
CNR No. : DLSW01-002643-2021
In the matter of:
Madhu Jaiswal
W/o Sh. Amit Nag
R/o H. No. H-1/54, Mahavir Enclave,
Palam Village, South-West Delhi,
Delhi-110045
.....Plaintiff
Versus
Sweety Verma
W/o Sh. Sandeep Verma
R/o RZ-G-1, Nanda Block,
Mahavir Enclave, New Delhi-110045
.....Defendant
SUIT FOR RECOVERY OF MONEY
DATE OF INSTITUTION : 04.03.2021
DATE OF FINAL ARGUMENTS : 31.08.2024
DATE OF DECISION : 06.09.2024
DECISION : Dismissed
Madhu Jaiswal Vs. Sweety Verma
Suit No. 240/21 2
JUDGMENT
1. The plaintiff has filed the present suit seeking (a) a decree of recovery of Rs. 5,83,000/- along with interest at the rate of 2% per month on maturity amount of Rs. 5,50,000/- from the date of filing of the present suit till date of realization and (b) costs of the suit. PLAINT
2. The brief facts as mentioned in the plaint are as follows:
(i) It is submitted that Plaintiff and Defendant are neighbours and are known to each other for quite some time and that in the month of January 2019, Defendant had approached the Plaintiff to participate in chit fund being organized by Defendant and to contribute a monthly some of Rs. 30,000/- starting from February 2019. It is also submitted that Defendant had undertook to pay Rs. 5,50,000/- on conclusion of chit at the end of July 2020.
(ii) It is further submitted that the Plaintiff had accordingly paid a sum of Rs. 4,80,000/- out of which Rs. 90,000/- was paid in cash and remaining amount of Rs. 3,90,000/- was deposited in the account of the Defendant bearing no. 910010019103182 with Axis Bank as below:
(a) Rs. 30,000/- on 10.02.2019;
(b) Rs. 30,000/- on 30.03.2019;
(c) Rs. 30,000/- on 01.07.2019 (Amount paid in cash)
Madhu Jaiswal Vs. Sweety Verma
Suit No. 240/21 3
(d) Rs. 30,000/- on 30.04.2019;
(e) Rs. 30,000/- on 31.05.2019;
(f) Rs. 30,000/- on 01.08.2019;
(g) Rs. 30,000/- on 31.08.2019;
(h) Rs. 30,000/- on 30.09.2019;
(i) Rs. 30,000/- on 01.11.2019;
(j) Rs. 30,000/- on 02.12.2019;
(k) Rs. 30,000/- on 01.01.2020;
(l) Rs. 30,000/- on 01.02.2020;
(m) Rs. 30,000/- on 29.02.2020;
(n) Rs. 30,000/- on 01.04.2020;
(o) Rs. 30,000/- on 01.06.2020 and
(p) Rs. 30,000/- on 01.07.2020 (amount paid through online transfer)
(iii) It is further submitted that all the payments made in cash were withdrawn by the Plaintiff from her account out of which two installments were paid by withdrawing from her account maintained in State Bank of India and one installment was paid by her sister's account namely Ekta Jaiswal. It is averred that after making the last payment on 01.07.2020, Plaintiff had demanded the maturity amount from the Defendant to the tune of Rs. 5,50,000/-, however, Defendant failed to do so. Consequently, present suit was filed by the Plaintiff for recovery of money along with interest.
Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 4 PROCEEDINGS OF THE CASE
3. A perusal of the Court file reveals that the suit was instituted on 04.03.2021 and summons for settlement of issues were issued to the Defendant which were duly served and WS along with an application under Order VIII R 1 of CPC was filed by the Defendant. Thereafter, aforesaid application under Order VIII R 1 of CPC for condonation of delay in filing the WS was allowed vide order dated 04.06.2022 and WS was taken on record. Thereafter, an application under Section 151 of CPC was filed on behalf of the Plaintiff for filing additional documents and Replication was also filed by the Plaintiff along with list of witnesses. No admission-denial of documents was recorded on behalf of the parties.
4. In the Written Statement, the Defendant has denied the averments and contents of the plaint and alleged that the averments of the plaint are false, frivolous and fabricated and that the Plaintiff has not approached the Court with clean hands. It is submitted that there was no brevity of contract between the Plaintiff and Defendant and that the Defendant has acted upon like an agent. It is further submitted that the Plaintiff was well aware about the investment of money in the said chit fund / committee and was also well aware about the profits and losses of the said scheme and that the Plaintiff was not even forced to invest or participate in the said scheme. It is alleged that Plaintiff has herself Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 5 shown her interest to participate in the said scheme. It is further submitted that the tenure of the said scheme was of 15 months and for every month, a contribution of Rs. 30,000/- per participant was to be made. It is submitted that the Defendant had only acted as an agent who was only been receiving the money and further transferring to the person who was running the said scheme and that the said amount was never been kept or used by the Defendant herself in any manner.
5. It is submitted that one Ms. Shilpi Gupta had organized a kitty scheme (also chit fund scheme) and the Plaintiff had approached the Defendant and showed her interest to participate in the said scheme. It is further submitted that the Plaintiff was duly informed about the benefits and losses of the said schemes. It is further submitted that the Plaintiff has only paid a sum of Rs. 3,90,000/- to the Defendant as her contribution to the scheme which was given to Ms. Shilpi Gupta who was running the chit fund scheme and no cash was ever paid and that the Plaintiff had not completed the entire tenure of the scheme. It is also submitted that due to the covid pandemic, the said scheme was collapsed and number of persons did not pay their contributions on time and consequently, a huge amount of Defendant had also been held up with Ms. Shilpi Gupta and that the Defendant was also taking legal recourses as per law against Ms. Shilpi Gupta. The Defendant has alleged that the Plaintiff has concealed the material facts from the Court Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 6 and that the suit is liable to be dismissed.
6. In the Replication, Plaintiff has denied the contents and averments of the Defendant and reiterated the contents of the plaint.
7. On the basis of pleadings, following issues were framed on 28.08.2023:-
(i) Whether Plaintiff is entitled to a decree of recovery of Rs.
5,83,000/- along with further interest at the rate of 2% per month, as prayed for? (OPP)
(ii) Whether the Plaintiff and Defendant had entered into any valid contract due to which the Defendant is under any legal liability to refund the sum of Rs. 5,50,000/- along with interest to the Plaintiff, as prayed for? (OPP)
(iii) Relief.
No other issue arises or pressed for by the parties and matter was proceeded for Plaintiff's evidence.
EVIDENCE LED BY THE PARTIES
8. On 28.02.2024, PW-1 / Plaintiff Smt. Madhu Jaiswal had tendered her evidence by way of affidavit Ex.PW1/A and relied upon the following documents:
(a) Ex. PW1/1 i.e. legal demand notice dated 04.02.2021;
(b) Ex. PW1/2 (colly) i.e. two postal receipts of speed post dated 04.02.2021;
Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 7
(c) Ex. PW1/3 (colly) i.e. internet generated copy of tracking reports of speed post as proof of service of legal notice;
(d) Ex. PW1/4 (colly) i.e. copy of the reply to the legal notice dated 18.02.2021;
(e) Ex. PW1/5 (colly) i.e. copy of Whatsapp conversation along with certificate under Section 65B of the Indian Evidence Act;
(f) Ex. PW1/6 i.e. certified copy of bank statement;
(g) Ex. PW1/7 i.e. certified copy of the bank statement of my sister;
(h) Ex. PW1/8 (OSR) i.e. copy of Aadhar card and
(i) Ex. PW1/9 i.e. copy of the transcript of voice recording between the IO in the criminal case with the Defendant.
9. Thereafter, PW-1 was cross examined and discharged and during cross-examination, PW-1 / Plaintiff deposed that she knew the Defendant through her neighbour namely Tinku Ain @ Shaily Ain since the year 2018 and further deposed that the Defendant was running a boutique in Nanda block. Relevant portion of the cross-examination of the Plaintiff is extracted herein:
"..........It is correct that in the present suit, I have asked the money back from the Defendant amounting to Rs. 5.5 lakhs. The Defendant had taken this money from me on pretext of committee. Committee is an investment scheme. The Defendant had told me about this scheme herself. I had invested this amount in January 2019. Again said, I do not Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 8 remember the exact date. The Defendant had only told me about the guaranteed profit with this investment scheme and not about loss. There might be some other people, but I do not have any idea about them. I was supposed to invest Rs. 30,000/- per month. There was no written agreement.........." The Plaintiff has denied the suggestion that the Defendant had informed her that the money was being invested by Shilpi Gupta.
10. Thereafter, on the even date, PW-2 Ms. Ekta Jaiswal was examined and she tendered her evidence by way of affidavit exhibited as Ex. PW2/A and relied upon already exhibited documents of PW-1 and also relied upon the photocopy of her Aadhar Card which was exhibited as Ex. PW2/1 (OSR). She was cross examined and discharged and during her cross-examination, she deposed that she is the real sister of the Plaintiff and admitted that no cash receipt was given by the Defendant to her and denied the suggestion that no cash was paid by her to the Defendant.
11. No other witness was examined on behalf of the Plaintiff and PE was closed vide separate statement of the Plaintiff on 28.02.2024. Affidavit of evidence of PW-3 was taken off record. Thereafter, it was submitted on behalf of the Defendant that no evidence was required to be recorded and that the DE may be closed and accordingly, DE was closed vide separate statement of the Ld. Counsel for Defendant. Matter Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 9 was proceeded for final arguments.
CONTENTION OF PARTIES
12. Final arguments were heard on behalf of the parties. Ld. Counsel for Plaintiff has argued that the Plaintiff has been able to establish the liability of the Defendant on a preponderance of probabilities and that the testimony of the Plaintiff has remained unchallenged as the Defendant has not recorded her evidence. He has submitted that the Plaintiff is entitled to the refund of the amount given by her to the Defendant, which fact has not been disputed by the Defendant i.e. that she had received certain sum of money from the Plaintiff, rather the Defendant has tried to wriggle out of her liability by alleging that she was merely an agent for a third party running a chit fund. It has been submitted that the Defendant could not produce any such witness to show that the facts averred by her are true and therefore, the Defendant is liable as such.
13. Per contra, it has been argued by Ld. Counsel for Defendant that the Defendant is not liable to pay any amount to the Plaintiff as she was merely an agent and she had transferred all the amount to the concerned person Ms. Shilpi who was running the chit fund / committee. It is further submitted that the Plaintiff was well aware about the terms and conditions of the committee and showed her interest to participate in the same and was not forced to do so. It is further submitted by the Ld. Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 10 Counsel for Defendant that the Plaintiff has admitted during her cross- examination that there was no written agreement between the parties and thus, the Defendant is not liable to pay any amount to the Plaintiff. Chit Funds Act, 1982 was filed on behalf of the Defendant along with following judgments:-
(a) Ramkrishna Ganpatrao Jogdand Vs. Kondiram Jaysingrao Naikwade AIR 2002 Bombay 148 dated 28.02.2001;
(b) Virender Singh Vs. Laxmi Narain (2006) LAWPACK(DEL) 31121 dated 01.11.2006 and
(c) J. Revathi and Anr. Vs. S. Murugesan in CRP (NPD) No. 2506/2012 dated 02.08.2012.
14. The main argument advanced on behalf of the Defendant is that the oral contract between the parties concerning the investment in the chit fund is hit by Section 23 of the Indian Contract Act, 1872 as being illegal and against public policy. The Ld. Counsel has cited the provisions of the Chit Fund Act, 1982 and emphasized on Section 4 of the said Act which prohibits unregistered chit funds. He has relied upon the maxim of "in pari delicto" and submitted that the Defendant and Plaintiff are equally guilty and therefore, the Plaintiff does not deserve to recover her investment.
ISSUE WISE FINDINGS
15. I shall decide all the issues together as they are interconnected. Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 11 The following observations and inferences can be drawn from the record:
(a) The Plaintiff has pleaded the fact that she had given a sum of Rs.
4,80,000/- to the Defendant for participating in a chit fund. This fact is the starting point for the suit and for the examination of the law applicable. The Defendant in fact, admits to receiving Rs. 3,90,000/- and disputes a sum of Rs. 90,000/- which is stated to have been paid in cash. However, the averments of the Defendant cannot be taken into account or given much value to as the Defendant never stepped into the witness box. Therefore, the admitted facts that arise from the record is that the Plaintiff gave a sum of Rs. 4,80,000/- to the Defendant as subscription amount to a chit fund.
(b) It is pertinent to note that the Plaintiff avers that the Defendant promised her that on the conclusion of the chit fund, she would be paid a sum of Rs. 5,50,000/- by the end of July 2020. This is the sum along with interest claimed by the Plaintiff in her suit. Therefore, the Plaintiff is not merely claiming the refund of Rs. 4,80,000/- paid by her to the Defendant but rather, she is also claiming the fruits of her investment i.e. the profits thereof promised to her by the Defendant.
(c) The Plaintiff goes on to claim in para 8 that " the Plaintiff has reason to believe at this stage that Defendant were not entitled to organize any chit and the chit organized by the Defendant is in violation Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 12 of chit fund law." Therefore, the Plaintiff has tried to make out a case that she was wholly unaware that she was investing in an unregistered chit fund. This claim may be examined herein in some detail by evaluating the evidence filed by the Plaintiff herself. Herein, we may also advert to the provisions of the Chit Fund Act, 1982. The said Act is to provide for the regulation of chit funds. The word 'chit' has been defined in Section 2(b) as a transaction under which a person enters into an agreement with a specified number of persons that everyone of them shall subscribe a certain sum of money by way of period or periodical installments over a definite period and that each such subscriber shall in his turn, be entitled to the chit amount. Section 4 of the Act states that no chit shall be carried on without obtaining the previous sanction of the State Government. Section 6 provides that every chit agreement shall be in duplicate and signed by every subscriber and attested by two witnesses. Section 10 provides that the foreman of the chit fund shall provide a copy of the chit agreement to every subscriber. Every such chit agreement has to be filed with the Registrar as per Section 7 of the said Act. The Plaintiff to support her case has filed the text of the Whatsapp conversation between the Plaintiff and Defendant which was exhibited as Ex. PW1/5 along with the certificate under Section 65B of the Indian Evidence Act. The said conversation would show that no reasonable person could have believed that the Defendant was carrying Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 13 out any registered chit fund. The Plaintiff has not averred that she signed any agreement or that she sought out any particulars about the chit business being carried out by the Defendant. The Plaintiff never sought any written receipt or acknowledgment and rather kept send the amount by way of account transfer or cash to the Defendant. The Plaintiff was well aware that she was investing in an informal setup and arrangement. Here is a sample of the kind of activities that the Defendant was promoting as per the text sent by her to the Plaintiff on 31.03.2019 - "Tomorrow is PK (6000) 2nd no. at public dhaba, Sec-11, near Raja Sweets n Senco Jewellers, 12:15 punctuality time 12:30 PM. "
No reasonable person can believe that a registered chit fund will carry out business in this manner and accept money without issuing any receipt or getting signed any chit agreement.
(d) Therefore, the question to be decided is whether the oral contract between Plaintiff and Defendant for investment in an unregistered chit fund can be recognized by the Court of law at the instance of the Plaintiff who knowingly subscribed with such fund.
Here, the precedents and law may be referred to in some detail. Section 23 of The Indian Contract Act, 1872 is extracted herein:
"23. What considerations and objects are lawful and what not The consideration or object of an agreement is lawful, unless-
it is forbidden by law; or Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 14 is of such a nature that, if permitted, it 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 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."
In Sita Ram v. Radhabai, 1967 SCC OnLine SC 27 : (1968) 1 SCR 805 : (1968) 2 SCJ 231 : AIR 1968 SC 534, Hon'ble Supreme Court of India has observed 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 Edn., 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 Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 15 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'.
12. There was in this case no plea by the plaintiff that there was any illegal purpose in entrusting the jewellery to Lachhmi Narain. It was also the plaintiff's case that Gomtibai knew that the jewellery in dispute was entrusted by the plaintiff to Lachhmi Narain, and if the avernments made in the plaint are to be the sole basis for determining the contest, Gomtibai 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.
Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 16
13. 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.
14. Secondly, the plaintiff must have been induced to enter into the contract by fraud or strong pressure.
15. 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. It was the plaintiff's case that it was at the persuation of Lachhmi Narain that the jewellery was entrusted to him."
In G.T. Girish v. Y. Subba Raju, (2022) 12 SCC 321 : 2022 SCC OnLine SC 60, it was held by Hon'ble Supreme Court that:
"In pari delicto potior est conditio defendentis
67. The principle of in pari delicto potior est conditio defendentis is a maxim which we must bear in mind. We need only notice the following discussion by this Court. The decision of this Court in Kedar Nath Motani [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] comes to mind : (AIR p. 216, para 9) Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 17 "9. ... Where both parties do not show that there was any conspiracy to defraud a third person or to commit any other illegal act, the maxim, in pari delicto, etc. can hardly be made applicable."
69. We may also notice the following statement by this Court in Kedar Nath Motani [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] : (AIR pp. 218-19, para 15) "15. The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 18 then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail."
70. In Sita Ram v. Radhabai [Sita Ram v. Radhabai, AIR 1968 SC 534] , this Court observed as follows : (AIR p. 537, para 12) "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 delicto portior est conditio defendantis. But as stated in Anson's Principles of the English Law of Contracts, 22nd Edn., 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'."
71. In Narayanamma [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363] , this Court was Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 19 considering a suit for specific performance, which was resisted on the ground that the agreement to sell was contrary to the provisions of the statute. Section 61 of the Karnataka Land Reforms Act, 1961 provided that no land for which occupancy was granted, shall within 15 years of the order of the Tribunal, be transferred by sale, inter alia. A partition was permitted. Equally, a mortgage could be effected to secure a loan. Drawing support from the judgment of this Court in Kedar Nath [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] , this Court, inter alia, as follows : (Narayanamma case [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363] , SCC pp. 52- 53, paras 15-16) "15. The three-Judge Bench [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] of this Court, after referring to the aforesaid judgments, speaking through M. Hidayatullah, J. (as his Lordship then was), observes thus : (Kedar Nath Motani case [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] , AIR pp. 218-19, para 15) '15. The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 20 root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail.'
16. It could thus be seen, that this Court has held that the correct position of law is that, what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. This Court further held, that if the illegality is trivial or venial and the plaintiff is not required to rest his case upon that illegality, Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 21 then public policy demands that the defendant should not be allowed to take advantage of the position. It has further been held, that a strict view must be taken of the plaintiff's conduct and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. However, if the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose is achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail."(emphasis supplied)
72. In Narayanamma [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363] , this Court further held as follows : (SCC pp. 58-59, paras 24-26) "24. The transaction between the late Bale Venkataramanappa and the plaintiff is not disputed. Initially the said Bale Venkataramanappa had executed a registered mortgage deed in favour of the plaintiff. Within a month, he entered into an agreement to sell wherein, the entire consideration for the transfer as well as handing over of the possession was acknowledged. It could thus be seen, that the transaction was nothing short of a transfer of property. Under Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 22 Section 61 of the Reforms Act, there is a complete prohibition on such mortgage or transfer for a period of 15 years from the date of grant. Sub-section (1) of Section 61 of the Reforms Act begins with a non obstante clause. It is thus clear that, the unambiguous legislative intent is that no such mortgage, transfer, sale, etc. would be permitted for a period of 15 years from the date of grant. Undisputedly, even according to the plaintiff, the grant is of the year 1983, as such, the transfer in question in the year 1990 is beyond any doubt within the prohibited period of 15 years. Sub-section (3) of Section 61 of the Reforms Act makes the legislative intent very clear. It provides, that any transfer in violation of sub-section (1) shall be invalid and it also provides for the consequence for such invalid transaction.
25. Undisputedly, both, the predecessor-in-title of the defendant(s) as well as the plaintiff, are confederates in this illegality. Both, the plaintiff and the predecessor-in-title of the defendant(s) can be said to be equally responsible for violation of law.
26. However, the ticklish question that arises in such a situation is:'the decision of this Court would weigh in side of which party'? As held by Hidayatullah, J. in Kedar Nath Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 23 Motani [Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213 : (1960) 1 SCR 861] , the question that would arise for consideration is as to whether the plaintiff can rest his claim without relying upon the illegal transaction or as to whether the plaintiff can rest his claim on something else without relying on the illegal transaction. Undisputedly, in the present case, the claim of the plaintiff is entirely based upon the agreement to sell dated 15-5-1990, which is clearly hit by Section 61 of the Reforms Act. There is no other foundation for the claim of the plaintiff except the one based on the agreement to sell, which is hit by Section 61 of the Act. In such a case, as observed by Taylor, in his "Law of Evidence"
which has been approved by Gajendragadkar, J. inImmani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739 : AIR 1962 SC 370] , although illegality is not pleaded by the defendant nor sought to be relied upon him by way of defence, yet the Court itself, upon the illegality appearing upon the evidence, will take notice of it, and will dismiss the action ex turpi causa non oritur actio i.e. no polluted hand shall touch the pure fountain of justice.
Equally, as observed in Story's Equity Jurisprudence, which again is approved in Immani Appa Rao [Immani Appa Rao v. Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 24 Gollapalli Ramalingamurthi, (1962) 3 SCR 739 : AIR 1962 SC 370] , where the parties are concerned with illegal agreements or other transactions, courts of equity following the rule of law as to participators in a common crime will not interpose to grant any relief, acting upon the maxim in pari delicto potior est conditio defendentis et possidentis."(emphasis supplied)
73. This Court in Narayanamma [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363] finally found as follows : (SCC p. 59, para 28) "28. Now, let us apply the other test laid down in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739 : AIR 1962 SC 370] . At the cost of repetition, both the parties are common participator in the illegality. In such a situation, the balance of justice would tilt in whose favour is the question. As held in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739 : AIR 1962 SC 370] , 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 an active assistance of the court in enforcing an agreement which is contrary to law. As against this, if the balance is tilted Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 25 towards the defendants, no doubt that they would stand benefited even in spite of their predecessor-in-title committing an illegality. However, what the court would be doing is only rendering an assistance which is purely of a passive character. As held by Gajendragadkar, J. in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739 : AIR 1962 SC 370] , 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."
(e) An application of the aforesaid law would show that there are certain exceptions to the rule that the Courts would not enforce a contract that is illegal. The first is that where the illegal purpose has not yet been substantially carried into effect. A perusal of the facts would show that the Plaintiff kept subscribing to the chit fund starting in the month of February 2019 till July 2020 and that as per her own averments, she was promised her investment along with profits at the end of July 2020. Therefore, it would lie in the mouth of the Plaintiff to show that the illegal purpose was not being carried into effect. The second exception is that where the parties are not " in pari delicto", the less guilty party may be allowed to recover the sum given in furtherance of an illegal agreement. The question that arises is whether Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 26 the subscriber to an unregistered chit fund can be said to be less guilty than the party accepting the subscriptions. A perusal of Section 76 of the Chit Funds Act, 1982 would show that clause 1 of the said provision penalizes both the subscriber as well as the foreman since it is framed in the following terms:
"(1) Whoever contravenes or abets the contravention of any of the provisions of sections 4, 5, 8, 9, 11, 12, 13, 14, 19, 20, 22, 24, 30, 31, sub-section (4) of section 33, sections 46, 47 or sub-section (5) of section 61 shall, on conviction, be punishable with imprisonment for a term which may extend to two years or with fine which may extend to five thousand rupees or with both." The Act itself therefore, does not distinguish between subscribers and the foreman or other parties who have violated Section 4 of the Act and rather, penalizes them with a punishment of imprisonment or fine. Therefore, it cannot be said that the Plaintiff and Defendant were not "in pari delicto." The third exception is that the Plaintiff can recover where he does not have to rely upon the illegality which taints the transaction. This is not applicable as the basis of the Plaintiff's claim is the subscription amount paid for the investment in the chit fund.
(f) Here, I may advert to the judgment cited at bar by the Ld. Counsel for the Defendant of the Hon'ble Madras High Court in J.
Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 27 Revathi and Anr. Vs. S. Murugesan in CRP (NPD) No. 2506/2012 dated 02.08.2012. The relevant extract is herein below:
"14. But here, the Point No.2, which I raised is based on Sections 4 and 76 of the Chit Funds Act.
15. A mere poring over and perusal of those provisions would clearly show that there is a legal embargo as against such conducting of unauthorised chits, which is punishable under law.
16. My mind is reminiscent and redolent of the following maxims:
(i) Ex turpi causa non oritur actio # (Out of a base (illegal or immoral) consideration, an action does (can) not arise.
(ii) Ex dolo malo non aritur actio - (Out of fraud no action arises; fraud never gives a right of action. No court will lends its aid to a man who founds his cause of action upon an immoral or illegal act.
(iii) Ex nudo pacto non oritur actio : No action can arise from a bare agreement.
(iv) In pari delicto potior est conditio possidentis (defendentis) - In a case of equal or mutual fault Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 28 (between two parties) the condition of the party in possession (or defending) is the better one. Where each party is equally in fault, the law favours him who is actually in possession. Where the fault is mutual, the law will leave the case as it finds it.
The sum and substance of these maxims would be to the effect that no legal cause of action would arise out of an illegal act.
17. I would like to extract the relevant portion from Broom's Legal Maxims, Tenth Edition by Herbert Broom at page Nos.499 and 501.
"In Collins v. Blantern (m) [2 Wils.341: See 1 Sm.L.C., 13th Ed., p.406] which is a leading case to show that illegality may well be pleaded as a defence to an action on a bond, it was alleged that the bond had been given to the obligee as an indemnity for a note entered into by him for the purpose of inducing the prosecutor of an indictment for perjury to withhold his evidence. For the plaintiff, it was contended that the bond was good and lawful, the condition being singly for the payment of a sum of money, and that no averment should be admitted that the bond was given upon Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 29 an unlawful consideration not appearing upon the face of it; but it was held that the bond was void ab initio, and that the facts might be specially pleaded; and it was observed by Wilmot, C.J., delivering the judgment of the Court, that "the manner of the transaction was to gild over and conceal the truth; and whenever Courts of law see such attempts made to conceal such wicked deeds, they will brush away the cobweb varnish and show the transactions in their true light". And again, "this is a contract to tempt a man to transgress the law, to do that which is injurious to the community: it is void by the common law; and the reason why the common law says such contracts are void is for the public good: you shall not stipulate for iniquity."
As a general rule, then, a contract cannot be made the subject of an action if it be impeachable on the ground of dishonesty, or as being opposed to public policy # if it be either contra bonos mores, or forbidden by the law (d). In answer to an action founded on such an agreement, the maxim may be urged, ex maleficio non oritur contractus (e) # a contract cannot arise out of an act radically vicious and illegal; "those who come into a court of justice to seek redress must come with clean hands, and must disclose a Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 30 transaction warranted by law" (f); and "it is quite clear, that a court of justice can give no assistance to the enforcement of contracts which the law of the land has interdicted (g)."
18. The plaintiff, who admittedly, subscribed to the unauthorised chit conducted by the defendants cannot file a suit for recovery of money from them and the court cannot extend its help in that regard.
19. Hence, it is quite obvious and axiomatic that the suit should not have been entertained by both the courts below. This is purely a law point based on admitted and indubitable facts and hence this court in revision was justified in framing that issue and deal with it.
20. In the result, the judgment and decrees of both the courts below are set aside; this civil revision petition is partly allowed and the suit filed by the plaintiff shall stand dismissed. However, there shall be no order as to costs. Consequently, the connected miscellaneous petition is closed."
Therefore, the Hon'ble Madras High Court is of the opinion that a subscriber to an unregistered chit fund cannot maintain a suit for recovery of the subscription amount. In the present case, the Plaintiff in Madhu Jaiswal Vs. Sweety Verma Suit No. 240/21 31 fact, does not wish to only recover her investment but also seeks to recover the promised profits. Therefore, the agreement which forms the basis of the case of the Plaintiff being a void one, cannot be enforced as per Section 23 of the Indian Contract Act.
(g) In light of the foregoing discussion, all the issues are decided against the Plaintiff and in favour of the Defendant. The issues are decided accordingly.
RELIEF
16. Therefore, the suit of the Plaintiff is dismissed. Parties to bear their own costs.
17. Decree sheet be prepared accordingly.
18. File be consigned to Record Room after due compliance.
Digitally
signed by
DIVYANG
DIVYANG THAKUR
THAKUR Date:
2024.09.06
16:23:19
+0530
Announced in the open court (Sh. Divyang Thakur)
On 06.09.2024 DJ-03/South West
Dwarka / New Delhi
Madhu Jaiswal Vs. Sweety Verma