Himachal Pradesh High Court
Vikas Sharma vs . Hemant Sharma And Anr. on 2 September, 2024
Vikas Sharma vs. Hemant Sharma and anr.
.
Civil Suit No. 22 of 2023 Order Reserved on: 05.08.2024 02.09.2024 Present: Mr. K.D. Sood, Senior Advocate with Mr. Neeraj Sharma, Advocate, for the applicant/plaintiff.
Mr. R.K. Bawa, Senior Advocate, with Mr. Nimish Gupta, Advocate, for the non-applicants/ defendants.
OMP No. 164 of 2023 The applicant/plaintiff has filed the present application to seek interim directions. It has been asserted that the applicant/plaintiff filed a civil suit seeking the recovery of ₹3,97,75,000/- with interest @ 12% per annum from the date of the filing of the suit till realization and damages of ₹50,00,000/-. The applicant/plaintiff had executed a sale deed. The non-applicants/defendants did not pay the entire sale consideration. They had undertaken to pay the sale consideration after the execution of the sale deed. The applicant/plaintiff executed the sale deed but non-
applicants/defendants failed to pay the balance amount.
They can sell, transfer, alienate or create charges over the suit property. Therefore, the application seeking an ::: Downloaded on - 02/09/2024 20:33:37 :::CIS injunction for restraining the non-applicants/defendants .
from alienating the suit property, creating any charge on the same.
2. The application is opposed by filing a reply by non-
applicant/defendant No.1 taking preliminary objections regarding lack of maintainability, the General Power of Attorney dated 09.06.2022 having been revoked by the actual owner vide revocation deed dated 10.10.2022 and the applicant/plaintiff having not come to the Court with clean hands. The contents of the application were denied on merits. It was asserted that the entire sale consideration was paid at the time of the execution of the sale deed. The applicant/plaintiff has not sought the relief of cancellation of the sale deed and he cannot claim the relief of injunction.
Hence, it was prayed that the present application be dismissed.
3. A separate reply was filed by non-applicant/defendant No.2 taking almost similar pleas as were taken by the non-applicant/defendant no. 1 and praying that the present application be dismissed.
4. I have heard Mr. K.D. Sood learned Senior Counsel assisted by Mr Neeraj Sharma, learned counsel for the ::: Downloaded on - 02/09/2024 20:33:37 :::CIS applicant/plaintiff and Mr R.K. Bawa, learned Senior Counsel .
assisted by Mr Nimish Gupta, learned counsel for the non-
applicants/defendants.
5. Mr. K.D. Sood, learned Senior Counsel for the applicant/plaintiff submitted that the applicant/plaintiff executed a sale deed in favour of the non-applicants/defendants for a consideration of ₹8,60,00,000/- out of which an amount of ₹4,44,25,000/-
+ ₹18,00,000/- has been paid to the non-applicants/ defendants. An amount of ₹3,97,75,000/- (₹ 8,60,00,000 -
₹4,62,25,000/-) remains to be paid to the applicant/plaintiff. The applicant/plaintiff is an unpaid seller and entitled to the balance sale consideration as per Section 55 (4)(b) of the Transfer of Property Act. He is entitled to the creation of the charge upon the property sold by him, therefore, the present application be allowed and the non-applicants/defendants be restrained from alienating the property or creating any charge over the same to protect the rights of the plaintiff.
6. Mr. R.K. Bawa, learned Senior Counsel for the non-
applicants/defendants submitted that the applicant/ plaintiff is claiming the ownership based on a General ::: Downloaded on - 02/09/2024 20:33:37 :::CIS Power of Attorney executed in his favour by the original .
owner. The General Power of Attorney does not confer any right upon a person. The right is only conferred by a registered sale deed. He relied upon the judgments of Hon'ble Supreme Court in Suraj Lamp and Industries Private Limited versus State of Haryana and Anr., 2012 (1) SCC 656, Ghanshyam Sarda versus Sashikant Jha, 2017 (1) SCC 599, Balram Singh versus Kelo Devi in Civil Appeal No. 6733 of 2022 decided on 23.09.2022, Shakil Ahmed versus Syed Akhlaq Hussain, 2023 INSC 1016 and M/s Paul Rubber Industries Private Limited versus Amit Chand Mitra in SLP (Civil) No. 15774 of 2022 decided on 25.09.2023 in support of his submission. He further submitted that the applicant/plaintiff is merely an agent holding Power of Attorney on behalf of the original owner and is not entitled to enforce the contract so executed by him. Hence, he prayed that the present application be dismissed.
7. I have given considerable thought to the submissions made at the bar and have gone through the records carefully.
8. The plaintiffs specifically asserted in Para 4 of the agreement that the original owner-Vipin Khanna was ::: Downloaded on - 02/09/2024 20:33:37 :::CIS willing to sell the suit property and the applicant/plaintiff .
was willing to purchase the same; hence, an agreement to sell was executed between the applicant/plaintiff and Vipin Khanna. The applicant/plaintiff paid the entire sale consideration and Vipin Khanna executed a General Power of Attorney in favour of the applicant/plaintiff instead of executing rthe sale deed. He authorized the applicant/plaintiff to look after, supervise, manage and control the property and to execute various deeds and do various acts. Thus, it is apparent from the averments of the plaint that the General Power of Attorney (GPA) instead of a regular sale deed was executed in favour of the applicant/plaintiff after receiving the whole sale consideration. It was laid down by Hon'ble Supreme Court in Suraj Lamp & Industries (P) Ltd. (2) v. State of Haryana, (2012) 1 SCC 656: (2012) 1 SCC (Civ) 351: (2012) 340 ITR 1: 2011 SCC OnLine SC 1360 that the General Power of Attorney cannot be a substitute for the regular sale deed. It does not convey any title nor it creates any interest in the immovable property. Transactions like GPA sales are invalid. It was observed at page 667:
"Conclusion ::: Downloaded on - 02/09/2024 20:33:37 :::CIS
23. Therefore, an SA/GPA/will transaction does not convey any title nor create any interest in an immovable .
property. The observations by the Delhi High Court in Asha M. Jain v. Canara Bank [(2001) 94 DLT 841], that the "concept of power-of-attorney sales has been recognised as a mode of transaction" when dealing with transactions by way of SA/GPA/will are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/will transactions are some kind of a recognised or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognise or accept SA/GPA/will transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.
24. We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Transactions of the nature of "GPA sales" or "SA/GPA/will transfers" do not convey title and do not amount to transfer, nor can they be recognised or a valid mode of transfer of immovable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property. They cannot be recognised as deeds of title, except to the limited extent of Section 53-A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in municipal or revenue records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to the transfer of leasehold property. A lease can be validly transferred only under a registered assignment of lease. It is time that an end is put to the pernicious practice of SA/GPA/will transactions known as GPA sales.
25. It has been submitted that making a declaration that GPA sales and SA/GPA/will transfers are not legally valid modes of transfer is likely to create hardship for a large number of persons who have entered into such transactions and they should be given sufficient time to regularise the transactions by obtaining deeds of conveyance. It is also submitted that this decision ::: Downloaded on - 02/09/2024 20:33:37 :::CIS should be made applicable prospectively to avoid hardship.
.
26. We have merely drawn attention to and reiterated the well-settled legal position that SA/GPA/will transactions are not "transfers" or "sales" and that such transactions cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreements of sale. Nothing prevents the affected parties from getting registered deeds of conveyance to complete their title. The said "SA/GPA/will transactions" may also be used to obtain specific performance or to defend possession under Section 53-A of the TP Act. If they are entered before this day, they may be relied upon to apply for regularisation of allotments/leases by development authorities. We make it clear that if the documents relating to "SA/GPA/will transactions" have been accepted/acted upon by DDA or other developmental authorities or by the municipal or Revenue Authorities to effect mutation, they need not be disturbed, merely on account of this decision.
27. We make it clear that our observations are not intended to in any way affect the validity of sale agreements and powers of attorney executed in genuine transactions. For example, a person may give a power of attorney to his spouse, son, daughter, brother, sister or relative to manage his affairs or to execute a deed of conveyance. A person may enter into a development agreement with a land developer or builder for developing the land either by forming plots or by constructing apartment buildings and in that behalf execute an agreement of sale and grant a power of attorney empowering the developer to execute agreements of sale or conveyances in regard to individual plots of land or undivided shares in the land relating to apartments in favour of prospective purchasers. In several States, the execution of such development agreements and powers of attorney are already regulated by law and subjected to specific stamp duty. Our observations regarding "SA/GPA/will transactions" are not intended to apply to such bona fide/genuine transactions." (emphasis supplied) ::: Downloaded on - 02/09/2024 20:33:37 :::CIS
9. Therefore, the applicant/plaintiff cannot .
claim any right on the basis of the General Power of Attorney as per the binding precedent of the Hon'ble Supreme Court of India.
10. The applicant/plaintiff further stated in Para 11 of the plaint that the defendants did not mention the complete sale consideration in the sale deed to avoid stamp duty and assured to pay the balance amount after the execution of the sale deed in their favour. It is apparent from the averments made by the applicant/plaintiff in the plaint, that the sale deed was not executed for the actual consideration but for a reduced consideration to avoid the payment of the stamp duty.
11. Chapter VII of the Indian Stamp Act, 1899 deals with criminal offences and procedures. Section 62 of the Act provides that any person executing or signing a document otherwise than as a witness any instrument chargeable with duty without the same being duly stamped shall be punishable with a fine. Similarly, Section 27 of the Stamp Act provides that the consideration and all other circumstances affecting the chargeability of any instrument with duty, shall be fully and truly set forth ::: Downloaded on - 02/09/2024 20:33:37 :::CIS therein, and S. 64 makes the omission to comply with the .
provisions of S. 27 penal and punishable. Thus, the legislature has made the execution or signing of an instrument chargeable to the stamp duty an offence when adequate stamp duty has not been paid on the instrument.
In other words, the signing or the execution of the instrument chargeable to the stamp duty without payment of the adequate stamp duty is forbidden by law.
12. Section 23 of the Contract Act makes an agreement, which is forbidden by law or which would defeat the provision of any law or which involves injury to a person or property of another void. It was laid down by Allahabad High Court in Ram Sewak v. Ram Charan, 1981 SCC OnLine All 806: AIR 1982 All 177: (1982) 8 ALR (SUM 36) 52, that where the parties had concealed the income to avoid the payment of the income tax, such an agreement cannot be enforced by the Court. It was observed:
"5...[I]n view of the admission of the parties that they had been keeping a double set of account for evading payment of income-tax and sales tax and that they had in fact evaded payment of taxes, the matter may be brought to the notice of the Income-tax and Sales Tax Authorities for such action as they may deem proper. The judgment of the lower appellate Court is dated 9th Sept., 1969. I do not know the result if any, of the direction made by the lower appellate Court for ::: Downloaded on - 02/09/2024 20:33:37 :::CIS reporting the case to the Tax Authorities. But when I .
read the judgment I felt that this is one of those cases where the Court should have refused to entertain the suit on the ground of public policy, as it involves directing the recovery of an amount found to be due to either party as a share of the profits which had been deliberately concealed by the parties from the books of account in order to evade the payment of taxes. No Court can countenance a deliberate evasion of the tax laws of the country, and to lend the aid of the Court for recovering an amount which had been deliberately kept concealed by the parties in order to evade payment of the taxes due thereon would amount to aiding and abetment of the evasion of the laws by the Court itself. It was the case of the parties that all the transactions were not entered in the books of account in order to evade payment of income tax as well as sales tax. It is highly probable that the entire amount of concealed profits represented the amount of sales tax evaded on the transactions of sale. I say so because the incidence of sales tax is in many cases much higher than the margin of profit of a dealer on a transaction of sale.
6. This is as far as the Court's conscience is concerned.
In strict law S. 23 of the Contract Act provides that the consideration or object of an agreement is lawful unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or ... .. .. ... the Court regards it as immoral, or opposed to public policy, "and" in each of these cases, the consideration or object of an agreement is said to be unlawful "and every agreement of which the object or consideration is unlawful, is void."
It is trite that a void agreement cannot be enforced by a Court.
7. In the present case the parties had agreed to carry on business in partnership. There was no illegality in that. The carrying on of business for earning profit was also lawful. But the parties further agreed in the course of carrying on their business that they would conceal some part of their business activity and would not enter certain items in the books of account maintained by them, in order ::: Downloaded on - 02/09/2024 20:33:37 :::CIS to evade payment of Income-tax and sales tax. It needs no .
showing that evasion of income tax and sales tax is forbidden by law and at any rate defeats the provision of the laws under which income tax and sales tax are levied and collected. The object of the agreement to carry on business in partnership was to earn profits. The further object was that part of the profits will be earned in such a way or retained in such a manner as to evade the payment of taxes. That was forbidden by and defeated the provisions of the tax laws. Therefore, the object of the agreement was, in part at least forbidden by law and such as defeated the provisions of law. Further, it cannot be disputed that evasion of taxes is opposed to public policy.
8. What is permitted is lawful avoidance of taxes, or in other words to so arrange one's affairs as to reduce the incidence of taxes to the minimum leviable under the law, but an evasion of the law, or falsification of accounts or deliberate non-payment 6f taxes though due or attempt to avoid payment of taxes by violating the tax laws is certainly not permitted. I have, therefore, not the slightest hesitation in holding that the agreement between the parties in so far as it related to earning of concealed profits, or concealment of the profits earned by falsification of accounts, was wholly void and no Court could enforce the agreement by directing an enquiry into the amount, or the destination, of the concealed profits in order to enforce the recovery of the share therein of one party from another." (Emphasis supplied)
13. It was held in Chandra Sreenivasa Rao vs. Korrapati Raja Rama Mohana Rao And Another, 1951 SCC OnLine Mad 131: (1951) 64 LW 770: (1951) 2 Mad LJ 264 :
AIR 1952 Mad 579 : 1951 MWN 653, that where the object of the agreement was criminal (performance of the child marriage), the Court shall not enforce such an agreement. It was observed:::: Downloaded on - 02/09/2024 20:33:37 :::CIS
"I agree with the opinion expressed by the learned .
Judge, viz., that the lending of money to a guardian to celebrate the marriage of her child is really for the purpose of enabling her to commit an act which is not only prohibited, but is made an offence under the Act.
Now coming back to S. 23 of the Indian Contract Act, it will be seen that the purpose of borrowing in this case is of such a nature that if permitted it would defeat the provisions of the Child Marriage Restraint Act of 1929, for the money was lent to enable the guardian to celebrate the marriage contrary to the provisions of Ss. 5 and 6 of the Act.
The borrowing is also opposed to public policy. Public policy is rather an elastic term and its connotation may vary with the social structure of a state, The limits and domain of the public policy are stated by Pollock and Mulla at page 155 in their book, Indian Contract Act, as follows:
"It is now understood that the doctrine of public policy will not be extended beyond the classes of cases already covered by it. (a) No Court can invent a new head of public policy; (b) it has even been stated in the House of Lords that public policy is always an unsafe and treacherous ground for legal decisions; (c) this does not affect the application of the doctrine of public policy to new cases within its recognised bounds; (d) but the test is always whether the enforcement of the impugned contract lends or is likely to lead to injurious action."
14. In the present case also, the parties had executed an instrument to avoid the payment of the stamp duty. As per the own showing of the applicant/plaintiff, the parties had not paid the proper stamp duty and the applicant/plaintiff had put the signatures on a document on which adequate stamp duty ::: Downloaded on - 02/09/2024 20:33:37 :::CIS was not paid; therefore, prima facie, he had committed an .
offence punishable under Section 62 & 64 and any agreement to enforce the commission of the offence has to be considered as void by the Courts as per Section 23 of the Contract Act. Further, the purpose of the sale deed was to defeat the provisions of Indian Stamp Act. Thus, the plaintiff will not be prima facie entitled to recover the balance amount.
15. It was submitted that the plaintiff was not to pay the stamp duty and the defendant was to pay the stamp duty, therefore, the plaintiff cannot be penalized.
This submission cannot be accepted. The plaintiff had put the signatures on a document which he knew was not property stamped, therefore, he was a party to an illegality. It was laid down by the Hon'ble Supreme Court in Loop Telecom & Trading Ltd. v. Union of India, (2022) 6 SCC 762: (2022) 3 SCC (Cri) 733: (2022) 3 SCC (Civ) 563:
2022 SCC OnLine SC 260 that where both the parties were party to an illegal agreement, the restitution cannot be claimed. It was observed:
"60. Section 65 of the Contract Act recognises the principle of restitution, particularly when a contract is discovered to be or becomes void. It stipulates thus:::: Downloaded on - 02/09/2024 20:33:37 :::CIS
"65. Obligation of person who has received advantage under void agreement, or contract that becomes void.
.
--When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."
61. In Pollock & Mulla's seminal treatise on the Contract Act [R. Yashod Vardhan and Chitra Narayan, Pollock & Mulla's Indian Contract and Specific Relief Acts, Vol. I (16th Edn., LexisNexis).], it has been noted that Section 65 does not operate in derogation of the maxim in pari delicto potior est conditio possidentis:
"Section 65 is not in derogation of the common law maxims ex dolo malo non oritur actio and in pari delicto potior est conditio possidentis; and only those cases as are not covered by these maxims can attract the application of the provision of Section 65 on the footing that when an agreement in its inception was not void and it was not hit by the maxims but is discovered to be void subsequently, right to restitution of the advantage received under such agreement is secured on equitable consideration. The section has been held not to apply where both parties knew of the illegality at the time the agreement was made and were in pari delicto."
Thus, the application of Section 65 of the Contract Act, 1872 has to be limited to those cases where the party claiming restitution itself was not in pari delicto.
62. In Principles of Law of Restitution [ Graham Virgo, Principles of the Law of Restitution (3rd Edn., OUP) p. 710.], it has been noted that all claims for restitution are subject to a defence of illegality. The genesis of this defence is in the legal maxim ex turpi causa non oritur actio (no action can arise from a bad cause). A court will not assist those who aim to perpetuate illegality. This rule was initially recognised by the House of Lords in its decision in Holman v. Johnson [Holman v. Johnson, (1775) ::: Downloaded on - 02/09/2024 20:33:37 :::CIS 1 Cowp 341 at p. 343: 98 ER 1120 at p. 1121]. Lord Mansfield held: (ER p. 1121) .
"The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and, the plaintiff, by accident, if I may so. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be assisted." (emphasis supplied)
63. The Principles of Law of Restitution subsequently notes that in pari delicto potior est conditio possidentis is a way of qualifying the ex turpi causa defence [ Graham Virgo, The Principles of the Law of Restitution (3rd Edn., OUP) p. 711.]:
"This in pari delicto principle enables the court to analyse the particular circumstances of the case to determine whether the claimant is less responsible for the illegality than the defendant, for then, as between the claimant and the defendant, the just result is that the claimant should not be denied relief, since the parties are not in pari delicto. But where the claimant is more responsible for the illegality or the parties are considered to be equally responsible, the in pari delicto principle applies and restitution will be denied." (emphasis supplied)
64. Thus, when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto.::: Downloaded on - 02/09/2024 20:33:37 :::CIS
65. In the decision of the UK Supreme Court in Patel v. Mirza [Patel v. Mirza, (2016) 3 WLR 399: 2016 .
UKSC 42], Lord Sumption, JSC has succinctly explained the nature of the inquiry to determine whether a party is in pari delicto: (WLR pp. 466-67, paras 241-43) "241. To the principle that a person may not rely on his own illegal act in support of his claim, there are significant exceptions, which are as old as the principle itself and generally inherent in it. These are broadly summed up in the proposition that the illegality principle is available only where the parties were in pari delicto in relation to the illegal act. This principle must not be misunderstood. It does not authorise a general inquiry into their relative blameworthiness. The question is whether they were [Ed. : The word between two asterisks has been emphasised in the original as well.] legally [Ed. : The word between two asterisks has been emphasised in the original as well.] on the same footing. The case law discloses two main categories of cases where the law regards the parties as not being in pari delicto, but both are based on the same principle.
242. One comprises cases in which the claimant's participation in the illegal act is treated as involuntary: for example, it may have been brought about by fraud, undue influence or duress on the part of the defendant who seeks to invoke the defence. ...
243. The other category comprises cases in which the application of the illegality principle would be inconsistent with the rule of law which makes the act illegal. The paradigm case is a rule of law intended to protect persons such as the plaintiff against exploitation by the likes of the defendant. Such a rule will commonly require the plaintiff to have a remedy notwithstanding that he participated in its breach." emphasis supplied) ::: Downloaded on - 02/09/2024 20:33:37 :::CIS Thus, in determining a claim of restitution, the claiming party's legal footing in relation to the illegal .
act (and in comparison, to the defendant) must be understood. Unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offers them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail.
66. The position in India is similar to that of Kuju Collieries Ltd. v. Jharkhand Mines Ltd. [Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533], where a Bench of three learned Judges of this Court relied on a judgment [Budhulal v. Deccan Banking Co., 1954 SCC OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101] of a five-Judge Bench of the then Hyderabad High Court. While construing the provisions of Section 65, this Court held: (Kuju Collieries case [Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533], SCC pp.
536-37, para 8) "8. A Full Bench of five Judges of the Hyderabad High Court in Budhulal v. Deccan Banking Co. [Budhulal v. Deccan Banking Co., 1954 SCC OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101] speaking through our Brother, Jaganmohan Reddy, J. as he then was, referred with approval to these observations [Harnath Kuar v. Indar Bahadur Singh, 1922 SCC OnLine PC 64] of the Privy Council. They then went on to refer to the observations of Pollock and Mulla in their treatise on Indian Contract and Specific Relief Acts, 7th Edn. to the effect that Section 65 of the Contract Act, 1872 does not apply to agreements which are void under Section 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 ::: Downloaded on - 02/09/2024 20:33:37 :::CIS 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: (Budhulal case [Budhulal v. Deccan Banking Co., 1954 SCC OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101], SCC OnLine Hyd paras 33-36) '33. 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 Section 65. The section 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 pre-existence of something which is subsequently found out and it may be observed that Section 66, Hyderabad Contract Act makes the knowledge (Ilm) 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 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 then that he may discover it to be void. There is nothing specific in Section 65 of the Contract Act, 1872 or its corresponding section of the Hyderabad Contract Act to make it inapplicable to such cases.
::: Downloaded on - 02/09/2024 20:33:37 :::CIS34. 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 is that if the aforesaid view is right then a 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, 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 an advantage over the plaintiff -- in pari delicto potior est conditio defendentio.
35. Section 84 of the Trusts Act, 1882, however, has made an exception in a case:
"84. Transfer for illegal purposes. --
Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee 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."
36. This specific provision made by the legislature cannot be taken advantage of in derogation of the principle that Section 65, Contract Act, is inapplicable where the object of the agreement was illegal to the knowledge of both 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.' ::: Downloaded on - 02/09/2024 20:33:37 :::CIS 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." (emphasis supplied) While upholding the view of the Hyderabad High Court, this Court held "it [the Full Bench [Budhulal v. Deccan Banking Co., 1954 SCC OnLine Hyd 187: AIR 1955 Hyd 69:
ILR 1955 Hyd 101] of the Hyderabad High Court] has rightly pointed out that if both the transferor and transferee are in pari delicto the courts do not assist them".
67. In an earlier decision of this Court in Immani Appa Rao v. Gollapalli Ramalingamurthi [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370] ("Immani Appa Rao"), a three-Judge Bench held that where both the parties before the Court are confederates in the fraud, the Court must lean in favour of the approach which would be less injurious to public interest. P.B. Gajendragadkar, J. (as he then was), speaking for the Court, held: (AIR p. 375, para 12) "12. Reported decisions bearing on this question show that consideration of this problem often gives rise to what may be described as a battle of legal maxims. The appellants emphasised that the doctrine which is pre-eminently applicable to the present case is ex dolo malo non orituractio or ex turpi causa non oritur actio. In other words, they contended that the right of action cannot arise out of fraud or out of transgression of law; and according to them it is necessary in such a case that possession should rest where it lies in pari delicto potior est conditio possidentis; where each party is equally in fraud the law favours him who is actually in possession, or where both parties are equally guilty the estate will lie where it falls. On the other hand, Respondent 1 argues that the proper maxim to apply is nemo allegans suam turpitudinum audiendum est, whoever has first to plead turpitudinum should fail; that party fails who first has to allege fraud ::: Downloaded on - 02/09/2024 20:33:37 :::CIS in which he participated. In other words, the principle invoked by Respondent 1 is that a man .
cannot plead his own fraud. In deciding the question as to which maxim should govern the present case it is necessary to recall what Lord Wright, M.R. observed about these maxims in Berg v. Sadler [Berg v. Sadler, (1937) 2 KB 158 (CA)], KB at p. 162. Referring to the maxim ex turpi causa non oritur actio Lord Wright observed that : (KB p. 162) '... This [maxim], though veiled in the dignity of learned language, is a statement of a principle of great importance; but like most maxims, it is much too vague and much too general to admit of application without a careful consideration of the circumstances and of the various definite rules which have been laid down by the authorities.' Therefore, in deciding the question raised in the present appeal it would be necessary for us to consider carefully the true scope and effect of the maxims pressed into service by the rival parties, and to enquire which of the maxims would be relevant and applicable in the circumstances of the case. It is common ground that the approach of the Court in determining the present dispute must be conditioned solely by considerations of public policy. Which principle would be more conducive to, and more consistent with, public interest, that is the crux of the matter. To put it differently, having regard to the fact that both the parties before the Court are confederates in the fraud, which approach would be less injurious to the public interest. Whichever approach is adopted one party would succeed and the other would fail, and so it is necessary to enquire as to which party's success would be less injurious to the public interest." (emphasis supplied)
68. The principle which was enunciated in the judgment in Immani Appa Rao [Immani Appa Rao v. Gollapalli ::: Downloaded on - 02/09/2024 20:33:37 :::CIS Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370] has been more recently applied in a decision of a three-
.
Judge Bench of this Court in Narayanamma v. Govindappa [Narayanamma v. Govind appa, (2019) 19 SCC 42: (2020) 4 SCC (Civ) 363]. The Court held: (Narayanamma case [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363], 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 parties are common participators 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 towards the defendants, no doubt that they would stand to benefit even in spite of their predecessor-in-title committing an illegality. However, what the court would be doing is only rendering 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 the public interest than the former."
69. Hence, in adjudicating a claim of restitution under Section 65 of the Contract Act, the court must determine the illegality which caused the contract to become void and the role the party claiming restitution has played in it. If the party claiming restitution was equally or more responsible for the illegality (in ::: Downloaded on - 02/09/2024 20:33:37 :::CIS comparison to the defendant), there shall be no cause for restitution. This has to be determined by the facts .
of each case.
16. Thus, the applicant/plaintiff cannot prima facie claim the amount from the non-applicants/defendants and his plea that he is entitled to a charge on the suit property is not acceptable.
17. r A perusal of the sale deed shows that the applicant/plaintiff had executed the same as a General Power of Attorney of the Vipin Khanna. He had also put his signatures as a General Power of Attorney. Thus, the plaintiff had acted as an agent of the owner. Section 230 of the Contract Act provides that in the absence of any contract, an agent cannot personally enforce contracts entered into by him on behalf of his principal nor he is personally bound by them. Therefore, the agent cannot enforce any agreement executed by him on behalf of the principal.
18. It was submitted that the Agreement to Sell and the General Power of Authority authorized the applicant/plaintiff to use the property in a manner, in which he liked and execute the sale deeds. This agreement was entered into between the plaintiff and the original owner. It was laid down by the Bombay High ::: Downloaded on - 02/09/2024 20:33:37 :::CIS Court in Mackinnon, Mackenzie & Co. v. Lang, Moir & Co., .
1881 SCC OnLine Bom 40: ILR (1881) 5 Bom 584: ID (1880- 1882) 5 Bom 385, that where the agreement shows that it was executed on behalf of the principal, the agent cannot sue or be sued in his own name. It was observed:
"The result seems to be that if the contract made by a person who is an agent is worded so as, when taken as a whole, to convey to the other contracting party the notion that the agent is contracting in that character and that he is the mouthpiece through which the principal speaks, he cannot sue or be sued on the contract. In the present case, Messrs. Mackinnon, Mackenzie & Co. say they make the agreement "as agents" for the owners of the steamer Oakdale. No case has as yet apparently decided that this would be enough to exclude their personal responsibility and the corresponding right to sue. In this charter party, however, there is more than this. It contains a clause by which the owners undertake to receive the cargo "on being paid freight" at the rate afterwards specified. If the agents intended to contract a personal liability, this engagement would have been differently expressed. It would have been said "which they engage to receive on being paid or on the owners being paid", As the contract stands, I think Mackinnon & Co. have clearly indicated that they are acting as agents and that the contract is "entered into by them on behalf of principals," i.e., the owners of the Oakdale, They speak from the first as agents; the owners are to receive the cargo; the owners are to be paid the freight; and the effect of these facts is not done away with by their afterwards signing their own name simply. Apart from technical considerations and from predilections derived from cases, the idea conveyed is distinctly that they are contracting, not for themselves, but on behalf of principals indicated, though not named.
xxxxxx ::: Downloaded on - 02/09/2024 20:33:37 :::CIS On the first issue, I think, inconvenient as it may be, .
that the plaintiffs are not entitled to maintain this suit. I dismiss the suit with costs." (Emphasis supplied)
19. Similarly, Calcutta High Court held in Jaytee Exports v. Natvar Parekh Industries Ltd., 2001 SCC OnLine Cal 230: AIR 2001 Cal 150: (2001) 3 Arb LR 519 : (2002) 1 RAJ 160 that where the document does not mention that agent would be bound by the contract, it will not fall within the definition of the contract to the contrary. It was observed:
"13. From the Bill of Lading, it is apparent that the said document was issued by defendant No. 1 as an agent of respondent No. 4, who is named in the document itself. There is no contract to the effect that the agent would be bound by the contract. Thus unless it is shown that there is a contract to that effect to bind the agent by the contract entered into by it on behalf of its named principal, the agent cannot be bound by it."
20. Hence, the agreement entered between the principal and the agent will not fall within the purview of a contract to the contrary. (please also see 1979 (83) Cal WN 75).
21. The General Power of Attorney nowhere mentions that the plaintiff will be able to act individually rather it mentions in the closing lines that the principal agreed to ratify and confirm all acts done by the Attorney and it would be treated as a principal was present ::: Downloaded on - 02/09/2024 20:33:37 :::CIS personally. Thus, the principal never intended to .
authorize the General Power of Attorney to act in his own name by virtue of the General Power of Attorney executed by him and prima facie, the suit filed by the Attorney in his name will not be maintainable.
22. Thus, the plaintiff has failed to show any prima facie arguable case in his favour and the plaintiff cannot be held entitled to the relief of injunction.
23. Consequently, the present application fails and the same is dismissed.
Civil Suit No. 22 of 202324. Be listed before Additional Registrar (Judicial) for admission denial of the documents on 11.09.2024.
(Rakesh Kainthla) Judge 2nd September, 2024 (saurav pathania) ::: Downloaded on - 02/09/2024 20:33:37 :::CIS