1. The plaintiff in the suit, which has given rise to this second appeal, was the sarpanch of the village panchayat of Rahuri in the Ahmednagar district. Under the Village Panchayats Act of 1920 the panchayat has the right of levying certain taxes, and in particular, under the rules made by the District Local Board in accordance with Section 27 of the Act, it is entitled to recover ground rent in respect of sites occupied in the village market. By an agreement made on April 22, 1933, between the plaintiff representing the village panchayat on the one hand and appellant No. 1 on the other the right to collect these dues was leased to appellant No. 1 for a period of one year. The consideration for the agreement was the sum of Rs. 2,300 which was to be paid in quarterly instalments. There were two sureties who undertook to pay in case of default by appellant No. 1. Default was made in the payment of the third instalment which was only paid in part. The fourth instalment was not paid at all, and the plaintiff, suing on behalf of the village panchayat, claimed to recover from appellant No. 1 and the two sureties the sum of Rs. 974-10-2.
2. The trial Court dismissed the suit. The learned Subordinate Judge overruled an objection made by the defendants that the agreement sued on was void on the ground that the village panchayat had no power to farm out the right to levy the dues in question. But he thought that the agreement was illegal because it contravened one of the rules made by the District Local Board requiring that sums collected should be paid in daily at the panchayat office.
3. There was an appeal which was heard by the Assistant Judge. He agreed with the Subordinate Judge that the village panchayat could legally farm out the right in question, but he differed on the other point. In his view the agreement could not be regarded as illegal because of the breach of the District Local Board rule. He accordingly decreed the suit, and this second appeal has been brought by the principal debtor and one of the sureties. The other surety has not appealed.
4. It has been contended on behalf of the appellants that the agreement on which the suit was based is illegal and void for both of the reasons which were put forward in the lower Court. We do not think it necessary, however, to consider the point based upon the District Local Board rule, because, in our opinion, it is abundantly clear that the village panchayat was incompetent to farm out the right to collect these dues and the agreement was ultra vires. The relevant authorities on this point were not cited in either of the lower Courts. They are Municipal Council. Kumbakonam v. Abbahs Sahib (1911) I.L.R. 36 Mad. 113 Sholapur Municipality v. Shivram Bkagwant (1928) I.L.R. 52 Bom. 414 30 Bom. L.R. 715 s.c. and Saundatti Municipality v. Shripadbhat (1932) 35 Bom. L.R. 163. These authorities show that unless the power to enter into a contract of this kind is conferred by the Village Panchayats Act itself, which is not the case, the agreement is ultra vires. It is not necessary to discuss these cases because that position has been conceded by the learned advocate who appears for the respondent.
5. The position he has taken up is that granting that the agreement is ultra vires and void, the village panchayat is entitled to recover the money claimed by it in the suit under the terms of Section 65 of the Indian Contract Act which provides as follows:--
When an agreement is discovered to be void, or when a contract becomes void,. any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
6. The first case to which Mr. Nijsure referred in support of his argument is Abaji Sitaram v. Trimbak Municipality (1903) I.L.R. 28 Bom. 66. That was a case of a contract by a Municipality which was not under seal as required by the Bombay District Municipal Act. It was held that nevertheless the Municipality was entitled to recover under the contract. But the case is not of much assistance for our purpose, because Section 65 of the Indian Contract Act is not discussed in the judgment, nor, it appears, was the decision based upon it. The Court relied on the English rale that though a contract must ordinarily be made under seal, still, where there is that which is known as an executed consideration, an action will lie though this formality has not been observed. Then we were referred to Gulabchand v. Fulbai (1909) I.L.R. 33 Bom. 411, a case of a marriage brokerage agreement void as opposed to public policy. The argument was put forward in that case that Section 65 has no application to contracts which are void ab initio. That argument appears not to have been accepted by the Court, vide the observations of Mr. Justice Batchelor at pp. 416 and 417 of the report. But though it was held that an action lay to recover money paid under the agreement, it was not by reason of Section 65. The Court held that it might be regarded as a suit for money had and received, and that as no material part of the illegal purpose had been carried into effect, the money paid was recoverable.
7. So far as these two cases go, therefore, the argument that Section 65 applies to a case like the present is not clearly made out. But there is a decision of the Privy Council in Harnath Kuar v. Indar Bahadur Singh (1922) L.R. 50 IndAp 69 which makes the position clear. That was a case of a contract void ab initio, namely, the sale of an expectancy contrary to the provisions of the Transfer of Property Act. Nevertheless it was held that the case was governed by Section 65 of the Indian Contract Act, which, according to the true construction of its terms, includes an agreement void, in the sense of being not enforceable by law, from its inception. Moreover, in Saundatti Municipality v. Shripadbhat (1932) 35 Bom. L.R. 163 to which I have already referred, it was held by the learned Chief Justice and Mr. Justice Rangnekar in the case of a very similar contract, namely, an agreement by a Municipality to lease the levy of a tax, that the moneys paid under the agreement could be recovered under Section 65, although the point did not actually arise in the case because no such claim had been put forward.
8. In the course of the argument we were referred to Rudragouda v. Gangowda : AIR1938Bom54 , where it appears to have been held that Section 65 does not necessarily apply to all agreements void ab initio, and does not apply in particular where an agreement is of a fraudulent nature, known to be illegal and involving moral turpitude on the part of the plaintiff. We are not concerned in the present case with any such distinction, because there is no reason to suppose that this agreement was in any way fraudulent, or indeed that the parties were aware that it was illegal.
9. As against these authorities as to the applicability of Section 65, Mr. Rele for the appellants was only able to cite one case, Municipal Board, Lucknow v. S.C. Deb (1932) I.L.R. 8 Luck. 1 F.B., a full bench decision of the Lucknow Chief Court. That was a case of a municipal contract not under seal as required by law. It was held by the full bench that Section 65 could not be applied to such a case and that no action could be founded upon such a contract. The decision is contrary to Abaji Sitaram v. Trimbak Municipality (1903) I.L.R. 28 Bom. 66, which is an authority binding upon this Court, and, moreover, we are not concerned with the law as to A.I.R. contracts not under seal. The village panchayat has no seal, and it is not suggested that it cannot enter into contracts that are not sealed. Mr. Rele appeared to be of opinion that the judgments of the full bench in this case were opposed to the view that Section 65 can be applied to any contract which is void ab initio. It is by no means clear that this is the case, for, according to the head-note which is supported by a passage in the judgment of the learned Chief Judge, it was held that 'a contract which is void from its inception and which is held to have been discovered to be so on the date on which it was reduced to writing would fall within the terms of Section 65 of the Indian Contract Act as a contract which has become void.' But in any case the Privy Council decision in Harnath Kuar v. Indar Bahadur Singh (1922) L.R. 50 IndAp 69 has not been discussed or referred to. In view of that decision and the view expressed by our own High Court in Saundatti Municipality v. Shripadbhat (1932) 35 Bom. L.R. 163 we are clearly of opinion that an action lies under Section 65 in the present case.
10. It was urged on behalf of the appellants that the requirements of that section are not satisfied because it is not proved that they have received any advantage under the agreement. The suggestion is that they may not have recovered the dues, but that was not the case which they put forward at the trial. What they pleaded was not that they failed to recover the dues but that they had paid over what they had recovered, so that the entire sum due had, in fact, been paid to the plaintiff. Whether that was so or not was a question of fact, and it has been decided adversely to the appellants. We must hold, therefore, that they have received an advantage, namely, the sum claimed by the plaintiff, and that they are liable to restore it.
11. The only other point argued relates to the liability of the sureties under the agreement. In the body of the agreement, which is exhibit 40, it was provided as follows:--
If I fail to pay instalment in time, the village panchayat may again sell by auction the rest of the period and if the Committee realizes less amount than the aforesaid total sum, the Committee may recover the deficit amount from me with costs by filing a suit against me.
12. The surety bond at the end of the agreement provided as follows:--
If Mr. Govind Keshav Dandavate (i.e. appellant No. 1) fails to pay the instalment as stated above regularly in time we both will pay the said amount to the Committee.
13. Mr. Rele's argument is, firstly, that the sureties only made themselves liable to pay one instalment, and, secondly, that the village panchayat was entitled under the agreement to re-auction the right when the failure to pay the instalment first occurred, and, as this remedy was not availed of, the sureties are discharged. In our opinion, there is no force in either of these contentions. It is true that the word 'instalment' is in the singular in both cases, but nevertheless the meaning clearly is that the sureties made themselves liable to pay each and any instalment that was not paid regularly in time. We entirely agree with the Courts below on the construction of the agreement that the sureties were liable not merely for a single instalment but for the amount, whatever it was, that the principal debtor failed to pay. As regards the second point, it was clearly optional for the village panchayat whether it would have a new auction or not, and the fact that it did not see fit to avail itself of this right cannot be regarded as a discharge of the liability of the sureties.
14. Although, therefore, we are unable to agree with the grounds of the learned Assistant Judge's decision, we think that in effect his judgment is right and that the plaintiff is entitled to succeed.
15. The appeal, therefore, is dismissed with costs.