Orissa High Court
Fakir Chand Seth vs Dambarudhar Bania on 25 March, 1986
Equivalent citations: AIR1987ORI50, AIR 1987 ORISSA 50, (1986) 1 ORISSA LR 523 1986 (2) ORISSALR 523, 1986 (2) ORISSALR 523
JUDGMENT P.C. Misra, J.
1. The plaintiff is in appeal against the judgment of the Subordinate Judge, Bhawanipatna in Money Suit No. 33/73 wherein he had prayed for recovery of Rs. 17,815/- including interest due on an agreement executed by the defendant on 19-1-1972.
2. The plaintiffs case is that on 19-1-72 he advanced a sum of Rs. 15,000/- to the defendant for supply of paddy in evidence whereof the defendant executed a document (Ext. 2) incorporating the terms agreed to between the parties. It was stipulated therein that the defendant is to supply 350 bags of paddy at the rate of Rs. 43/- per bag of fine paddy and at the rate of Rs. 45/- per bag of superfine paddy by 28-2-72 and after the said supply the defendant was to take return of the document executed by him. The plaintiffs case is that the defendant neither supplied the paddy nor refunded the advance money to the plaintiff in spite of several demands though the defendant had sent two letters to him requesting for time to settle up the matter. The plaintiff has alleged that he is not a regular money-lender and the aforesaid transaction was a solitary one in which he had advanced money for purchase of paddy : as aforesaid. The suit has been filed for recovery of the aforesaid amount of Rs. 15,000/- which the plaintiff had advanced to the defendant and also for interest at the rate of 12 per cent per annum.
3. The defendant in his written statement denied the plaint allegations denying the execution of any document pn 19-1-72 in favour of the plaintiff and also denying to have received any amount whatsoever as advance. He also denied to have sent any letter acknowledging the receipt of the aforesaid amount nor did he ever undertake to repay the same as alleged in the plaint. A plea has been taken by the defendant that the plaintiff not being a licensed dealer, he could not legally purchase huge amounts of paddy as per the stipulations of Ext. 2. It is, therefore, contended that Ext. 2 being a contract for sale and purchase of paddy, the same was illegal and void being opposed to law as it would amount to procurement of paddy without a valid licence for which the said document is unenforceable in law and the amount said to have been advanced by him is not legally recoverable. The defendant also takes the plea that the plaintiff is a regular money lender and he having no money-lending licence, the principal as well as interest thereof cannot be recovered by him in the suit.
4. The learned Subordinate Judge having framed necessary issues which arise out of the pleadings recorded the following findings :
(i) The document (Ext. 2) is genuine under which the plaintiff had advanced a sum of Rs. 15,000/- to the defendant.
(ii) Ext. 2 is an agreement for procurement of paddy for which the plaintiff had no valid licence. It, therefore, follows that Ext. 2 is not a lawful agreement as it defeats the provisions of Orissa Rice and Paddy Control Order, 1965.
(iii) The consideration for such a void agreement being also illegal, neither the contract is enforceable in law nor the amount advanced thereunder is recoverable through court.
(iv) The plaintiff is not entitled to any relief under Sections 65 or 70 of the Indian Contract Act.
(v) The plaintiff is not a money-lender in regular course of business and the suit is not hit by the provision of the Orissa Money Lenders Act.
(vi) Ext. 2 being void in law the suit for recovery of the amount advanced thereunder is not maintainable and hence the same is liable to be dismissed.
5. Though in the grounds of appeal the plaintiff-appellant had challenged the findings of the learned trial court and urged that Ext. 2 is not a void contract, during the course of argument the said ground was abandoned and the learned counsel for the appellant proceeded assuming the said finding to be correct in law and contended that the plaintiff is entitled to the relief claimed in the suit under Sections 65 and 70 of the Contract Act (hereinafter referred to as the 'Act'). Going through the relevant documents and the evidence in the suit, we are also of the view that the said finding of the learned Subordinate Judge is not assailable. Under the provisions of the Orissa Rice and Paddy Control Order, 1965 which was in force on the date of the suit transaction, "Dealer" was defined as any person who purchases, sells or . stores any wholesale quantity of rice or paddy or rice and paddy taken together. "Wholesale quantity" was defined to be five quintals inside the State of Orissa excluding the border area. The said Orissa Rice and Paddy Control Order prohibits any person to act as a dealer except under and in accordance with a licence issued in that behalf by the licensing authority. Under Ext. 2 the plaintiff advanced a sum of Rs. 15,000/- to the defendant for supply of paddy at the stipulated rate for which the plaintiff evidently had no licence issued under Orissa Rice and Paddy Control Order, 1965. The plea taken by the plaintiff at the trial that he was to purchase paddy on behalf of Janata Rice Mill as its commission agent has been factually disbelieved by the learned trial court with which we agree. Besides, "purchase in wholesale quantity" as defined in the Orissa Rice and Paddy Control Order, 1965 includes purchase on one's own behalf or on behalf of another or as a commission-agent. Thus the plaintiff would still be a dealer, even if his aforesaid plea of purchase by commission agent is accepted. We would, therefore, proceed on the basis that Ext. 2 was hit by the provisions of Orissa Rice and Paddy Control Order, 1965 which means that such an agreement was forbidden by law and the agreement is of such a nature that, if permitted, it would defeat the prpvisons of law. In other words Ext. 2 was an unenforceable agreement and, therefore, void under Section 23 of the Contract Act.
6. The defendant's plea of total denial of the execution of Ext. 2 and advancement of money thereunder having been discarded by the learned trial court, against which there has been no cross-objection nor challenge during the course of argument, the same shall be taken to be final in between the parties. It, therefore, follows that the plaintiff had advanced and the defendant had accepted a sum of Rs. 15,000/- on 19-1-72 for supply of 350 bags of paddy at the stipulated rate by the defendant to the plaintiff. As has been already stated this agreement was void u/s, 23 of the Act and was not enforceable by either of the parties. The only question which requires determination in this appeal is as to whether the plaintiff would be entitled to refund of the said consideration money under Sections 65 and 70 of the Act.
7. Sections 65 and 70 of the Act, 1872 are in the following words :
Section 65 : 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."
Section 70 : Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
Section 65 deals both with 'agreement' and 'Contract'. Section 2(e) of the Act defines an 'agreement' as every promise or every set of promises forming the consideration for each other. Clause (h) of the said Section provides that an agreement enforceable by law is a contract. Section 65 of the Act, therefore, deals with (a) agreements which are enforceable by law and (b) agreements not so enforceable. By Clause (g) of the said Section an agreement not enforceable by law is said to be void. This is not a case where the agreement (Ext. 2) becomes subsequently void. The words "when a contract becomes void" in Section 65 of the Act pre-suppose the enforceability of the contract at the inception on the date of its execution which became illegal thereafter, It is, therefore, required to be seen as to whether Section 65 of the Act would embrace an agreement which was void ab initio. Any agreement which is ab initio void may fall under the description "contract discovered to be void" within the meaning of Section 65 of the Act, if it was not known to the parties that it was void at the time when it was entered into. Section 65 provides for restitution of any advantage received under a contract or agreement, where the agreement is discovered to be void, or where the contract becomes void.
8. Section 70 of the Act enables the court to do substantial justice where a person lawfully does anything for another person or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, by directing the latter to make compensation to the former in respect of, or to restore, the thing so done or delivered. In order that Section 70 of the Act would apply, the necessary conditions are that: (1) a person should lawfully do something for another person or deliver something to him, (ii) in doing so he must not act gratuitously, and (iii) the person for whom it is done must have enjoyed the benefit thereof. Section 70 of the Act is not founded on contract but embodies the equitable principles of restitution and prevention of unjust enrichment.
It has, therefore, to be examined in this case as to whether the plaintiff was entitled to restitution of the money which he advanced under the void contract (Ext. 2) applying Section 65 of the Act and if he is entitled to the same relief u/s. 70 of the Act.
9. In the case of Kulu Collieries Ltd. v. Jharkhand Mines Ltd. reported in AIR 1974 SC 1892 the Hon'ble Supreme Court clearly defined the scope of Section 65 of the Act in the following words :
"The section makes a distinction between an agreement and a contract. According to Section 2 of the Contract Act an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of the section speaks of an agreement being discovered to be void it means that the agreement is not enforceable and is, therefore, not a contract. It means that it was void. It may be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which, was originally enforceable and was, therefore, a contract becomes void flue to subsequent happenings. In both these cases any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it."
This, however, does not mean that Section 65 of the Act can be taken advantage of by the parties who knew from the beginning that the agreement was void. If the plaintiff had entered into an agreement under the belief that it was a legally enforceable agreement without the knowledge that the same was forbidden by law, he can claim restitution or compensation under the said Section. In this case there has been no pleading or proof that the plaintiff on the date of execution of Ext. 2 was aware that the agreement in question was in violation of law, namely the Orissa Rice and Paddy Control Order, 1965. It would therefore, be a case where the agreement was not known to the plaintiff to be one in violation of law and, which was subsequently discovered to be void.
10. In a single Judge decision of Bombay High Court reported in AIR 1978 Bom 322, Bhaskarrao Buty v. Smt. Saru Jadhaorao cited on behalf of the respondent it has been held that the knowledge of an illegality where the illegality flows from operation of the law has to be imputed to a party, because ignorance of a statutory provision cannot be set up as a defence. In that case, foodgrain was given to the defendant on loan which was in contravention of Clause 10 of Maharashtra Scheduled Foodgrains (Stocks, Declaration and Procurement and Disposal, Acquisition, Transport and Price Control) Order, 1966. The learned court held that the knowledge of illegality of the transaction must be imputed to the parties for which the Court should not render any assistance to the plaintiff for realisation of the loan advanced by the plaintiff. We are not prepared to accept the said decision as laying the correct law as it is not consistent with the view expressed by the Supreme Court in the decision reported in AIR 1974 SC 1892 (supra).
In a decision reported in AIR 1960 Andh Pra, 186 Sivaramakrishniah v. Narhari Rao, it was held : --
"In order to invoke Section 65 the invalidity of the contract or agreement should be discovered subsequent to the making of it. This cannot be taken advantage of by parties who knew from the. beginning the illegality thereof. It only applies to a case where one of the parties enters into an agreement under the belief that it was a legal agreement, i.e. without the knowledge that the agreement is forbidden by law or opposed to public policy and as such illegal. The effect of Section 65 is that, in such a situation, it enables a person not in pari delicto to claim restoration since it is not based on an illegal contract but dissociated from it. That is permissible by reason of the section because the action is not founded on dealings which are contaminated by illegality. The party is only seeking to be restored to the status quo ante. Section 65 also does not recognise the distinction between a contract being illegal by reason of its being opposed to public policy or morality or a contract void for other reasons. Even agreements, the performance of which is attended with penal consequences, are not outside the scope of Section 65. At the same time, Courts will not render assistance to persons who induce innocent parties to enter into contracts of that nature by playing fraud on them to retain the benefit which they obtained by their wrong".
The aforesaid principle was approved by the Supreme Court in the case reported in AIR 1974 SC 1892 (supra). In a decision of this Court reported in AIR 1974 Ori 49, Lakhiram v. Brajal relying on the aforesaid decision of Andhra Pradesh High Court and some others, it was held that Section 65 of the Act applies where the contract is void from its inception but the parties or at least the plaintiff enters into it bona fide and the contract is later discovered to be void. In that case the transactions were found to be hit by the provisions of West Bengal Food Grains Licensing Order.
The other decisions cited at the Bar reiterating the same position need not be noticed. In such circumstances, the plaintiff is entitled to be restored to his former position.
11. That apart, the provisions of Section 70 of the Act which is based on the principles of equity can be invoked. From the language of Section 70, it is apparent that where a claim for compensation is made by one person against another under Section 70 of the Act, it is not on the basis of any subsisting contract between the parties. It is on the basis that something was done by the party for another or that something has been delivered by him which was accepted by the latter to his benefit, for which the law imposes the liability on such party benefited by the transaction, to make compensation or to restore the things so done or delivered to him notwithstanding the fact that the contract was void vide AIR 1968 SC 1218, Mulamchand v. State of Madhya Pradesh. In another decision of the Supreme Court their Lordships observed that between the person claiming compensation and the person against whom it is claimed, some lawful relationship must subsist, but the said lawful relationship arises not because the party claiming compensation has done something for the party against whom the compensation is claimed, but because what has been done by the former has been accepted and enjoyed by the latter. In the present case the plaintiff had advanced a sum of Rs. 15,000/- to the defendant under Ext. 2 for supply of paddy which the defendant had voluntarily accepted undertaking to perform the stipulated work by a particular date. We have held that performance of the said work i.e. supply of the quantity of paddy mentioned in Ext. 2 without a valid licence was illegal and, therefore, the agreement under Ext. 2 was void. The amount of money advanced under Ext. 2 was evidently not gratuitous. Acceptance of the said amount by the; defendant implies a corresponding liability on the part of the defendant for return of the money in the event, the performance of the work was not possible because of the prohibition by law. It is to meet such situations and to provide remedies, in such cases, principles of equity have been embodied in Section 70 of the Act to prevent unjust enrichment or unjust benefit. We, would, therefore, conclude that the plaintiff shall be entitled to refund of the amount advanced under Ext. 2, to the defendant, together with interest for illegal detention thereof as claimed.
12. Learned counsel for the appellant advanced an alternative argument that Ext. 2 can be construed as a promissory note under which the defendant incurred the liability to pay back the amount with interest. In view of our conclusion as stated earlier, this point need not be discussed at length. We may, however, observe that Ext. 2 does not comply with the requirements of Section 4 of the Negotiable Instrument Act so as to be construed as a promissory note.
13. In the result, the appeal succeeds. The judgment and the decree passed by the learned trial court impugned in this appeal are set aside and the suit is decreed in full with costs throughout.
B.K. Behera, J.
14. I agree.