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Shanta Agarwal Vs. Baldota Bros - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai High Court
Decided On
Case NumberO.C.J. Suit No. 584 of 1968
Judge
Reported in(1974)76BOMLR156
AppellantShanta Agarwal
RespondentBaldota Bros
Excerpt:
indian contract act (ix of 1872), sections 23, 2(d)--illegal agreement--property, subject matter of such agreement--plaintiff whether can succeed in recovering it--averments in plaint in suit for recovery of moneys that moneys advanced to dejendant not disclosed by plaintiff to income-tax authorities and defendant knew about it--defendant contending that agreement to advance moneys illegal and void under section 23--issue of illegality tried as preliminary issue--whether open to court in determining such issue to probe surrounding circumstances--agreement whether illegal and void--impropriety or illegality of motive in entering into agreement whether affects its validity under section 23--pleadings--whether on inspection of document referred to in plaint, each statement in it becomes part.....vimadalal, j.1. this is a suit filed by the plaintiffs to recover from the defendants a sum of rs. 11 lakhs together with interest thereon at the rate of 1 per cent, per mensem from the dates of the respective advances made to the defendants.2. the plaintiffs' case is that, in january 1964, an agreement was arrived at between the plaintiffs and the defendants under which the plaintiffs agreed to advance to the defendants in cash large amounts of moneys which were undisclosed to the income-tax authorities, with interest at 1 per cent, per mensem, in respect of which the defendants agreed to execute promissory notes in the names of the plaintiffs or in other names benami for the plaintiffs, and were also, to renew the said loans from time to time on condition of issuing fresh promissory.....
Judgment:

Vimadalal, J.

1. This is a suit filed by the plaintiffs to recover from the defendants a sum of Rs. 11 lakhs together with interest thereon at the rate of 1 per cent, per mensem from the dates of the respective advances made to the defendants.

2. The plaintiffs' case is that, in January 1964, an agreement was arrived at between the plaintiffs and the defendants under which the plaintiffs agreed to advance to the defendants in cash large amounts of moneys which were undisclosed to the income-tax authorities, with interest at 1 per cent, per mensem, in respect of which the defendants agreed to execute promissory notes in the names of the plaintiffs or in other names benami for the plaintiffs, and were also, to renew the said loans from time to time on condition of issuing fresh promissory notes in the same names or in the names of different benamidars for the plaintiffs, as may be required by plaintiff No. 1 on behalf of the plaintiffs. In paras. 4 to 8 of the plaint the plaintiffs have set out the various advances that, were made pursuant to the said general agreement which has been pleaded in para. 3 of the plaint. In para. 8 of the plaint, the promissory notes as they finally stood renewed at the date of the filing of the present suit have been listed, and in para. 9 it has been stated that from about December 1965 the defendants were in great financial difficulties and the plaintiffs had, therefore, in January 1966 demanded the return of their loans amounting at the time to Rs. 11 lakhs, and interest thereon, from the defendants. In para, 11 of the plaint it has been averred that, some time in June 1966, there was a raid on the office and residence of the defendants by the Income-tax Department, and certain documents belonging to the defendants, including a diary maintained by them, were seized by the officers of the Income-tax Department. It is further stated in the said paragraph that defendants Nos. 2 and 3 who were then called upon to explain the contents of that diary made statements before the Income-tax Officers; concerned that the amounts mentioned in the diary had been received by them from the plaintiffs. It is further stated in the said para that thereafter several meetings took place with the Income-tax Officers concerned and, ultimately, a settlement was arrived at between the plaintiffs and the Income-tax Department as a result of which the plaintiffs disclosed the full amount of Rs. 11 lakhs and interest thereon to the said Department and filed the necessary income-tax and wealth-tax returns showing the same. In para. 15 of the plaint it is alleged that the amount of Rs. 15,37,166 was due and payable by the defendants to the plaintiffs at the date of the filing of this suit, and the plaintiffs prayed for a decree being passed in favour of all or one or more of them.

3. The defendants have filed a Written Statement in which, apart from raising the contentions that the plaint disclosed no cause of action, that the suit was bad for misjoinder of plaintiffs and causes of action, and that the suit was barred by limitation, the defendants have contended in para. 5 of their Written Statement that the agreement alleged in para. 3 of the plaint was illegal, void ab initio and unenforceable as the consideration or object thereof, inter alia, was to conceal and keep concealed, fraudulently, the undisclosed moneys suppressed by the plaintiffs from the Income-tax authorities in respect whereof income-tax and wealth-tax had been evaded by the plaintiffs. The defendants have in their Written Statement also denied the agreement alleged in para. 8 of the plaint, as well as the loans alleged to have been made by the plaintiffs set out in paras. 4 to 8 of the plaint. They have also denied the execution of the promissory-notes relied upon by the plaintiffs in the said paragraphs and the consideration in respect of the same.

4. After issues were framed by me, Mr. Parpia on behalf of the defendants applied that issues Nos. 1 to 5 be tried as preliminary issues in the case. That application was opposed by Mr. Laud. Before giving my ruling, however, I seriously cautioned Mr. Parpia on the inadvisability of the issue of illegality being tried as a preliminary issue, and made it quite clear to him that, if he persisted in his application in that behalf, he would be at the disadvantage of being confined to the averments contained in the plaint. Mr. Parpia, however, pressed his application for the trial of those preliminary issues, and after hearing both the counsel, 1 gave a ruling that issues Nos. 1, 2 and 3 were to be tried as preliminary issues as, according to Mr. Parpia, they were pure issues of law, but I declined to try issues Nos. 4 and 5 as preliminary issues as, in my opinion, they involved questions of fact, particularly in regard to the alleged acknowledgment of liability as saving the bar of limitation. The preliminary issues were then argued before me at considerable length and a large number of authorities were cited on both sides in the course of that argument.

5. There is not much substance in issues Nos. I and 2 which were raised as preliminary issues at the instance of Mr. Parpia, and I may dispose them of before I deal with issue No. 3. It is true that, as far as the promissory notes were concerned, the plaint does not disclose any cause of action in so far as it is not disputed that in none of the said promissory notes does the name of any of the plaintiffs appear, nor are those promissory notes endorsed in favour of the plaintiffs. It is a fundamental principle of the law relating to negotiable instruments that it is only the party whose name appears on the instrument, either as the payee or endorsee thereof, who can sue on the instrument. The plaintiffs' suit is, however, not based only on the promissory notes, but is based on the original cause of action also and I fail to see how, as far as the cause of action for moneys lent and advanced by the plaintiffs to the defendants is concerned, it could be said that the plaint does not disclose a cause of action. Rightly or wrongly, the plaintiffs have averred in paras. 9 and 15 of the plaint that they had demanded the return of the loans, and that the amounts lent and advanced by them to the defendants had become due and payable. It is true that they have not pleaded in the plaint the date or dates on which the amounts advanced by them to the defendants became repayable but, in my opinion, it would not follow from that that the plaint does not disclose a cause of action, as contended by Mr. Parpia, for the simple reason that in such a case the law steps in and Section 46 of the Contract Act provides that where no time for performance is specified, the contract must be performed within a reasonable time. Whether the demand for repayment pleaded in para. 9 of the plaint was made after the expiration of reasonable time or not is a question which will have to be agitated at the hearing of the suit itself, but I am unable to hold that the suit as framed discloses no cause of action and issue No. 1 must, therefore, be answered in the affirmative.

6. As far as issue No. 2 is concerned, the same must also be answered in favour of the plaintiffs because, on the plaint as it stands, the case made out is that the moneys were lent and advanced to the defendants by the plaintiffs, and not that a particular plaintiff advanced a particular amount to a particular defendant. Those advances were undoubtedly made at different times and in the names of different benamidars for the plaintiffs, but all the same, the suit as framed is for the recovery of moneys advanced jointly by all the plaintiffs to all the defendants jointly pursuant to the general agreement pleaded in para. 3 of the plaint. It is true that in para. 4(c) of the plaint the plaintiffs have set out that the moneys that had been advanced by the date mentioned therein belonged to the three plaintiffs as stated therein, but I am not prepared to read that averment as meaning that the advances were separate and distinct advances by each of the plaintiffs so as to result in a misjoinder of plaintiffs and causes of action. It is also true that in para. 15 of the plaint the plaintiffs have pleaded that in the event of any dispute arising between the parties as to which amounts were due to which of the plaintiffs, the Court should pass a decree in favour of one or more of the plaintiffs to whom the same may be found to be due. That averment is, however, made as a matter of formal pleading ex majore cautela and I am not prepared to say that it amounts to an averment of distinct advances by each of the plaintiffs so as to result in a misjoinder of plaintiffs and causes of action as, Mr. Parpia sought to contend. I answer issue No. 2 in the negative.

7. Having answered issues Nos. 1 and 2 in favour of the plaintiffs, I will now proceed to deal with issue No, 3 on which the argument was almost entirely addressed. Mr. Parpia's contention in regard to this issue of illegality is that the averments in para. 3 of the plaint show ex facie that the moneys that were agreed to be advanced by the plaintiffs to the defendants were moneys which had not been disclosed by the plaintiffs to the income-tax authorities and which had, therefore, evaded tax, and that those averments further showed that the defendants, in entering into that agreement, were 'to accommodate' the plaintiffs by paying them interest at the rate of 1 per cent, per mensem and executing promissory notes in the names of such persons as may be specified by the plaintiffs as their benamidars and renewing those promissory notes also in the same fashion. Mr. Parpia has submitted that it is, therefore, quite clear that the object of the agreement was that the plaintiffs' moneys which were undisclosed to income-tax authorities should remain undisclosed and should continue to evade tax;, both in regard to the principal as well as the interest accruing thereon. Mr. Parpia further sought to contend that the object of the agreement was that the amounts which had evaded income-tax should also evade wealth-tax, and in that connection he relied upon the statements contained in para. 11 of the plaint to the effect that as a result of the settlement arrived at between the plaintiffs and the Income-tax Department, the plaintiffs disclosed the full amount of Rs. 11 lakhs and interest thereon in the revised returns of income-tax and wealth-tax filed pursuant thereto.

8. Reliance was placed by Mr. Parpia in support of his contention on the provisions of Sections 139(7) and 271(7)(c) of the Income-Tax Act, 1961, as well as on Sections 14(7) and 18(7)(c) of the Wealth-Tax Act, 1957, and on the verification clause at the end of the prescribed form of the returns which has incorporated in it a declaration that no other income accrued or arose to or was received by the assessee in question.

9. Before I deal with the authorities, there is one contention of Mr. Parpia which I would like to dispose of. Paragraphs 3 and 11 of the plaint were read by Mr. Parpia again and again in order to base a submission that I should infer from those averments not only that the moneys advanced by the plaintiffs were moneys which had not been disclosed to the income-tax authorities, but that the interest therefrom was also intended to escape taxation at the hands of those authorities. In support of that argument, Mr. Parpia relied upon the use of the word 'accommodate' in para. 3 of the plaint as well as on the fact that the promissory notes which were to be executed by the defendants for the loans made by the plaintiffs were to be in the names, not of the plaintiffs alone, but of such persons as may be nominated by plaintiff No. 1 as the benamidars of the plaintiffs, and were also to be renewed in the same manner. Mr. Parpia further contended that I should infer from the averments made in para. 11 of the plaint that the amounts advanced to the defendants by the plaintiffs had not only been, undisclosed to the income-tax authorities, but that they were meant to remain undisclosed to the wealth-tax authorities also. As far as these contentions of Mr. Parpia are concerned, I am afraid I cannot accept any of them for the simple reason that Mr. Parpia has chosen to have the issue of illegality tried as a preliminary issue in spite of the caution administered by me to him when he made that application. Whilst it would be open to me to place a proper construction on the averments contained in the plaint for the purpose of determining the preliminary issue which I am now considering, it would not, in my opinion, be open to me to draw any inference from the averments as they appear ex facie, nor would it be open to me to a probe into the surrounding circumstances or to make what has been called in one of the authorities 'deeper search' into the object of the transactions in suit. If I were to do so, I would be travelling beyond the realm within which I must confine myself for the purpose of determining the preliminary issue as a pure point of law on the averments contained in the plaint. In my opinion, taking the averments contained in para. 3 of the plaint as they stand and construing them, as indeed I am entitled to do, all that emerges is (1) that the moneys which the plaintiffs were to advance under the agreement pleaded therein were to be moneys which had not been disclosed by the plaintiffs to the income-tax authorities and had, therefore, escaped income-tax; and (2) that the defendants knew that they were moneys which had not been disclosed to the income-tax authorities and that income-tax had not been paid by the plaintiffs thereon. I am not prepared to go further and proceed on the basis that on the averments contained in para. 3 of the plaint it should be inferred that the moneys advanced by the plaintiffs to the defendants were to remain concealed from the income-tax authorities, or that the interest paid thereon was also to escape taxation at the hands of the income-tax authorities. The mere fact that promissory notes were to be passed in other names benami for the plaintiffs would not lead to any such conclusion. It has been held by the highest judicial authorities in several eases that benami transactions are very common in India. The mere fact that the moneys advanced to the defendants had already escaped income-tax cannot lead me to the conclusion that the promissory notes in question were to be passed benami for the purpose of keeping the moneys concealed from the income-tax authorities, or for the purpose of the interest accruing thereon escaping taxation at the hands of the income-tax authorities. Moreover to draw any of those conclusions would itself amount to a process of inference to which it is not open to me to resort in dealing with a preliminary issue. As stated above, I must decide the preliminary issue in question on the averments as they stand without drawing any such inferences or considering any circumstances or making any further 'search' of the nature Mr. Parpia wanted me to be drawn into.

10. Turning to para. 11 of the plaint, I am afraid there the position is still worse for Mr. Parpia for it is not in the nature of a pleading of the agreement between the plaintiffs and the defendants at all, but the said paragraph refers to a totally different matter viz. what subsequently transpired as between the defendants and the income-tax authorities, and as between the plaintiffs and the income-tax authorities, after 'the bubble had burst'. In deciding a preliminary issue, I cannot be called upon to infer or conclude or arrive at a finding as to what the agreement or its object was, from statements relating to what transpired at a subsequent stage. The mere fact that in para. 11 of the plaint it is stated that pursuant to the settlement arrived at by them with the Income- tax Department they had filed revised returns, not only of income-tax but also of wealth-tax, showing the amounts advanced by them to the defendants which were the subject-matter of the promissory notes cannot necessarily lead to the inference that the object of the agreement as between the plaintiffs and the defendants was to evade liability to wealth-tax, as Mr. Parpia would have me hold. For these reasons, I have come to the conclusion that it is only on the basis of the two facts enumerated by me in the preceding paragraph that 1 must proceed to decide the issue of illegality which I have tried as a preliminary issue at the instance of Mr. Parpia.

11. I will now turn to the authorities that were cited on the point by the learned Counsel on either side and deduce the ratio that, in my opinion, emerges therefrom. The position is stated with lucidity in Cheshire and Fifoot on the Law of Contract (7th edn.), pp. 301-304, 310-313, 322 and 331-332. It is pointed out there under the heading of 'The Consequence of Illegality' that a contract may be illegal as formed, or as performed. It is then pointed out that if the contract as made is expressly or impliedly forbidden by statute, it is totally void and cannot be enforced on account of its illegality. It is further pointed out that a plaintiff can, however, enforce the recovery of money, chattels or land transferred to the defendant, if he can frame a cause of action entirely independent of the illegal contract, for in those circumstances he is not compelled to rely upon the illegality; and various cases are cited in support of that proposition, to some of which I will refer later on in this judgment. It is further stated by Cheshire that where a contract is illegal as formed, a contract which is founded on and springs from the illegal transaction is also illegal and void. Cheshire then proceeds to deal with the case of a contract which is not illegal in its inception, but is illegal as performed, or in other words, is later on exploited for an unlawful purpose. In that connection it is stated (at p. 302) that a contract does not necessarily become illegal merely because some contravention of a statute is incidentally committed in the course of its performance, but the contravention must concern an act essential to the contemplated execution of the contract, or in other words, the illegality must affect the very core of the contract. Cheshire mentions six types of contracts which could aptly and correctly be described as; contracts which were illegal as formed, and the last of those is stated to be a contract to defraud the revenue. In regard to the same, it is stated (at p. 322) that there is a clear infringement of the doctrine of public policy if it is apparent, either directly from the terms of a contract or indirectly from other circumstances, that the design of the parties is to defraud the revenue. In regard to this statement, however, it must be noted that, since I am trying the issue as a preliminary issue the question of the object being ascertained indirectly from other circumstances does not arise at all in the present case. I am not deciding the issue of illegality on evidence but only on the averments in the plaint as they stand and the agreement as pleaded therein. I am, therefore, only concerned with the first part of the statement in Cheshire to which I have just referred, viz. that directly from the terms of the contract as pleaded in the plaint, it must be apparent that the design of the parties in the present case was to defraud the revenue. Mr. Parpia, in the course of his argument, sought to draw a distinction between contracts illegal by statute, and contracts illegal at common law. It is true that Cheshire has dealt with the point which I am now considering under these two heads in separate Chapters, but in regard to the principles with which I am concerned there is no difference at all between those two classes of contract and the principles applicable to both are, as stated above. In Halsbury's Laws of England (3rd edn.), Vol. 8, p. 125, it is stated that if the illegality of a transaction is brought to the notice of the Court and the person invoking the aid of the Court is himself implicated in the illegality, the Court will not assist him, even if the defendant has not pleaded illegality and does not wish to raise the objection. To the same effect is the statement of law in Chitty on Contracts (23rd edn.), pp. 374 to 379, and in Anson on Principles of the English Law of Contract (22nd edn.), pp. 313, 336 and 342-343. There is, however, one passage in Anson (at p. 343) to which I would like to refer, because it formulates the legal position with characteristic lucidity:

But 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 (in part delicto potior est conditio defendentis) just quoted 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.

12. Having referred to the standard English works on the subject, I must next refer to the statutory provision with which I am directly concerned, viz. Section 23 of the Indian Contract Act, the material part of which enacts that the 'consideration or object' of an agreement is lawful, unless it is of such a nature that if permitted it would defeat the provisions of any law, or is opposed to public policy. The said section provides that in such cases the consideration or object of the agreement is said to be unlawful and the agreement is void. On the plain language of Section 23 it is, therefore, clear that in order to invalidate an agreement, either as being intended to defeat the provisions of law, or as being opposed to public policy, as is contended on behalf of the defendants in the present case, it must be shown that the consideration or object of that agreement is tainted in that manner. As far as consideration is concerned, it is defined by Section 2(d) of the Contract Act and, if one were to avoid the use of the cumbrous technical phraseology employed therein, consideration is what a party gets in return for what it gives to the other party under a contract. As far as the agreement in the present case pleaded in para. 3 of the plaint is concerned, the consideration for the promise of the plaintiffs to advance moneys to the defendants is the promise of the defendants to repay those moneys and to pay interest at the agreed rate and execute promissory notes in the names of the plaintiffs or their benamidars. No part of that consideration could be said to be either intended to defeat the provisions of any law or to be opposed to public policy, and the defendants can, therefore, succeed on the principal issue of illegality only if they can show that the 'object' of that agreement was illegal. In that connection, it may be pointed out that the illegality that is pleaded in para. 5 of the 'Written Statement and is the subject-matter of issue No. 3 framed by me, is illegality only in regard to the general agreement pleaded in para. 3 of the plaint, and not in regard to the agreement that would be implicit in each individual advance made pursuant thereto. Before I deal with the authorities on the point, it would be convenient to clarify the distinction between 'object' and 'motive' for the simple reason that the impropriety or illegality of the motive that has led a party to enter into an agreement cannot affect its validity under Section 23 of the Contract Act. As a matter of plain language, the relevant meanings of the term 'object' in the Shorter Oxford English Dictionary (3rd edn.) are, 'that to which action, thought, or feeling is directed,' or 'the thing aimed at.' On the other hand, the relevant meaning of the term 'motive' in the same Dictionary is, 'that which moves or induces a person to act in a certain way.' 'Motive' is a term of frequent use in criminal law and in that sphere of law it has been defined by the highest Court as 'something which prompts a man to form an intention' (Basdev v. State of Pepsu : 1956CriLJ919 , para. 6. The Nagpur High Court has, in the Full Bench case of Kashinath v. Bapurao considered the distinction between 'object' and 'motive' for the purpose of Section 23 of the Contract Act (at p. 311). It is stated that Section 23 is not concerned with motive, but is confined to the consideration and object of the transaction. Equating 'motive' with 'the reasons which prompted the action,' the judgment of the Court states that the immediate object of the plaintiff in the said case was to lend to one L a sum of money in exchange for a mortgage security, that a 'deeper search' revealed that the more remote object of the plaintiff was to lend the said sum of money to L to enable him to pay G, and it was held that neither of these objects was against public policy so as to vitiate the transaction. The learned Judges then referred to the reason for L borrowing the money as being that L wanted to compensate G for the doing of an illegal act and thus satisfy his own conscience. With regard to that contention the Court took the view that to enter upon an investigation of the same was to leave the realm of object and enter that of motive with which Section 23 of the Contract Act was not concerned. It is unnecessary for me to deal further with the said case, except to state that the Court came to the conclusion that the object of the loan was not to effect an illegal purpose and the defence that the transaction was void as being contrary to public policy failed. In the case of Sugan Chand v. Han Bux [1959] 9 Raj. 905 a single Judge of the Rajasthan. High Court before whom the contention of the invalidity of the transaction in the said case under Section 23 of the Contract Act was raised stated (at p. 907) that the principle emerging from the authorities was that motive was essentially different from the consideration or object of a transaction, and the fact that the contract in the said case was entered into in the expectation of some ulterior gain, viz. that the plaintiff's creditor would not be able to trace the property and to attach it, would not affect the contract which was valid in every way. The result of this discussion is that, to put it in ordinary language, 'motive' is what prompts the action of the person concerned, whilst 'object' is what that person sought to achieve, or the thing at which he aims or his purpose or design. The two are essentially different and it is with this distinction in mind that I must proceed to consider the preliminary issue of illegality based on Section 23 of the Indian Contract Act.

13. The agreement in the present case is alleged to be illegal as formed, and not to be illegal in the matter pi its performance and it, therefore, falls according to Mr. Parpia within the first of the two classes into which Cheshire divides illegal contracts. Two questions, therefore, arise for my consideration viz., (1) is the agreement as pleaded in para. 3 of the plaint illegal in its formation by reason of the facts (a) that the plaintiffs had agreed to lend money which had not been disclosed to the income-tax authorities, and (b) that the defendants knew of that fact; and (2) if the answer to question No. (1) be in the affirmative, whether the plaintiffs is compelled to rely upon the illegality in order to obtain relief in this suit, as framed. The leading English case on the point which has been cited in most of the subsequent authorities, English as well as Indian, is the case of Bowmakers, Ld. v. Barnet Instruments, Ld. [1945] 1 K.B. 65 The facts of the case were that the plaintiffs Bowmakers Ld. sued the defendants Barnet Instruments Ld. to recover damages for the conversion of certain machine tools which they alleged were their property. The tools in question were the subject of three hiring agreements between the plaintiffs and the defendants, each of which contained an option to purchase. In each case the machines were originally the property of a man named Smith who sold the goods to the plaintiffs and the plaintiffs entered into three hiring agreements with the defendants in the general form. The defendants after making some payments sold and converted to their own use all the machines except the one which was the subject-matter of the second agreement, which they refused to deliver to the plaintiffs on demand. The defendants contended that the plaintiffs had no remedy against them because the plaintiffs had violated certain defence regulations in regard to price as well as in regard to the requisite licence to deal with the machine. The trial Court held that no illegality had been proved in respect of any of the hiring agreements and decreed the plaintiffs' suit for damages for conversion. On appeal, it was observed that even on the assumption that the three hiring agreements were all affected by illegality, the question was whether in the circumstances the plaintiffs were without a remedy. In that connection Du Parcq L.J. stated that, as far as their claim in conversion was concerned, they were not relying on the hiring agreements at all, but were simply saying that the machines were their property which could not be denied, and that (at p. 70) prima facie, a man is entitled to his own property and it is not a general principle of our law (as was suggested) that when one man's goods have got into another's possession in consequence of some unlawful dealings between them, the true owner can never be allowed to recover those goods by an action. The learned Lord Justice then proceeded to refer to certain authorities and formulated the legal position as follows (p. 71):

In our opinion, a man's right to possess his own chattels will as a general rule be enforced against one who, without any claim of right, is detaining them, or has converted them to his own use, even though it may appear either from the pleadings, or in the course of the trial, that the chattels in question came into the defendant's possession by reason of an illegal contract between himself and the plaintiff, provided that the plaintiff does not seek, and is not forced, either to found his claim on the illegal contract or to plead its illegality in order to support his claim.

14. The learned Lord Justice, therefore, held that no rule of law and no considerations of public policy compelled the Court to dismiss the plaintiffs' claim before them and to do so would be, in the opinion of the Court, a manifest injustice and the appeal was, therefore, dismissed. The result, therefore, was that the trial Court's decree for damages for conversion was confirmed in respect of fell the three hiring agreements. Bowmakers' case has been discussed and commented upon at some length by Cheshire (at pp. 305-306), but though the learned author of the said work characterised the decision in Bow-makers' case as 'dubious,' there is not the slightest doubt that it is the leading case on the point I am now considering and is still good law. Before I part with that case, it must be pointed out that though the cause of action in regard to the machine which was the subject-matter of the second agreement in Bowmakers' case was a claim in detinue, as far as the machines which were the subject-matter of the first and the third agreements in the said case which had already been sold off by the defendants were concerned, the plaintiffs' claim could be and was only in damages for conversion, and was a pure money claim. It is important to bear in mind that even with regard to that money claim the same argument prevailed viz., that the plaintiff could rely on his initial title to the machines and the illegality relating to the hire agreements, therefore, did not preclude the Court from granting him relief, in one ease for damages for conversion of the said two machines, and in the other case to an order in detinue for the return of the machine or its value. In the forefront of his argument Mr. Parpia relied upon the English decision of the Court of Appeal in the case of Napier v. Nat. Business Agency [1951] 2 All E.R. 864 in which the defendants had engaged the plaintiff to act as their secretary and accountant on a salary of 13 a week, together with 6 a week for expenditure, though both the parties were aware that the plaintiff's expenses could never amount to 6 a week and in fact could not exceed 1 a week. This was done with a view to evade the payment of income-tax to the Inland Revenue Commissioners on the said sum of 6 which was represented in the returns as reimbursed expenses. The plaintiff having been summarily dismissed, claimed payment from the defendants, in lieu of notice, at the rate of 13 a week. It was held that the provisions of the service agreement relating to expenses having been intended to evade tax, the agreement was contrary to public policy, that the agreement was not sever-able and that the whole of it was, therefore, unenforceable, and the decision of the trial Judge was confirmed and the appeal dismissed. There can be no doubt that, as observed in the judgment in the said case, both parties knew that the amounts stated in the agreement in regard to expenses bore no relation to the actual expenses' that would be incurred and that the object of the parties, therefore, clearly was to defeat the proper tax claims of the Inland Revenue. The case of Miller v. Karlinski (1945) 62 T.L.R. 85 which was also relied upon by Mr. Parpia is almost identical on facts with Napier's case just cited by me and it is not, therefore, necessary for me to discuss the same. The case of Alexander v. Rayson [1935] All E.R. Rep. 185 was also cited by Mr. Parpia. The facts of that case were that a landlord had let a flat under a lease in which the annual rent was mentioned as 450, and the annual payment for services provided for under a contract was 750, aggregating to 1,200 per annum in all. It was in evidence that the object of doing so was to defraud the rating authority by deceiving them as to the true rateable value of the flat, inducing them to believe that the only payment received by the landlord in respect of the premises was 450 per annum, and concealing from them the terms of the contract. It was proved that the landlord had produced the lease, but not the contract, to the assessment committee who had reduced the valuation of the flat, but had restored the original assessment when the true facts were brought to their notice. The defendant was ignorant of the plaintiff's purpose. It was held that as the illegal purpose had been partially effected the landlord was not entitled to enforce either the lease or the agreement and recover from the tenant the rent or the payment under the contract for services. The Court took the view that the plaintiff landlord could not maintain his action without asserting and relying upon the unlawful agreement and the result was that the defendant would be entitled to remain in possession of the flat without payment of rent until and unless the respondent could eject her without having to rely upon the lease or the agreement (at p. 193). These cases have been cited by Cheshire (at p. 322) as authorities for the proposition formulated there, that there would be clear infringement of the doctrine of public policy if it was apparent that the design of one or both of the parties was to defraud the revenue. The case of Bigos v. Boosted [1951] 1 All E.R. 92 cited by Mr. Parpia is an illustration of the principle enunciated by Cheshire (at p. 306) that if a contract is illegal in its formation, a contract which is founded on and springs from the illegal transaction is also illegal and void. The facts of that case were that the defendant was anxious to send his wife and daughter abroad, but owing to restrictions on English currency he was unable to obtain adequate allowance for them from the Treasury. The defendant, therefore, entered into an agreement with the plaintiff in contravention of the Exchange Control Act whereby the plaintiff agreed to make available 150 worth of Italian money for the defendant's wife and daughter in Italy, and the defendant promised to repay her with English money in England. As security for his promise, the defendant deposited with the plaintiff a share certificate for 140 shares in a company. The defendant's wife and daughter went to Italy, but the plaintiff failed to make any Italian money available to them and they, therefore, returned to England sooner than they would otherwise have done. The defendant then asked the plaintiff to return his share certificates, but the plaintiff refused to do so. In an action by the plaintiff to recover the sum of 150 from the defendant on the ground that she had made a loan to him of that sum, the defendant denied the loan, act out the facts of the transaction, and counterclaimed for the return of the certificates. The plaintiff abandoned the suit, but the defendant proceeded with the counterclaim for the return of the certificates. It was held that the fact that the illegal transaction was not carried out was due not to any repentance on the part of the defendant, but to the frustration of the contract by the plaintiff (at p. 101). It was further held that, as the agreement relating to the deposit of share certificates was one which sprang from and was the creature of the main illegal agreement and was tainted with the same illegality (at p. 94), and as the parties were in pari delicto at the time when they entered into the illegal agreement (at p. 95), the defendant was not entitled to succeed in his counterclaim to recover the share certificate. Several other decisions of English Courts were cited before me by Mr. Parpia, but it is not necessary for me to refer to the same.

15. There are, however, four decisions of our own Courts to which I must now refer in chronological order. The first of them is the decision of a Division Bench of this Court in the case of Babulal v. South Satara Etc. Assoc. Ltd. (1959) 62 Bom. L.R. 304 The plaintiff Babulal was doing business in groundnuts and turmeric at Sangli. The first defendant-association, which was a public limited company, had been founded for the purpose of promoting the business of the Sangli Bazaar in various commodities, including turmeric, and followed a clearing house system as provided by its Articles, and the transactions in question between the plaintiff and some shareholders were effected according to the bye-laws of the first defendant-association. It was the duty of the association as clearing agents to distribute the money due to the members, and it appointed defendant No. 2 as its clearing agent for that purpose. On a certain date the defendant-association declared the rates at which all transactions had to be squared up and deposit made as required by the rules for distribution to the creditor members concerned on the next day. The plaintiff claimed to be entitled to a sum of Rs. 9,470 from defendants Nos. 1 and 2 as such creditor member and filed a suit to recover the same'. One of the defences raised was that forward transaction in turmeric had been declared to be illegal under the Defence of India Rules and the plaintiff was, therefore, not entitled to recover any amount in respect of the transactions in suit. After referring to the leading case of Bowmakers, Ld. v. Barnet Instruments, Ld., the Court took the view (at p. 308) that where the cause of action was not founded either on the illegal contract or on its breach, the party's right to possess his own chattels will be enforced against those who without any right detain the same or convert them to their own use, even if it appears either from the pleadings or the evidence led at the trial that they had come in possession of the defendants as a result of an illegal transaction. The appeal was, therefore, allowed and the plaintiff's suit decreed. It may be noted that, in this case also, though the learned Judge delivering the judgment of the Court has referred to the rule relating to the recovery by a party of his chattels without relying on the illegal contract, the rule was actually applied to what was purely a claim for the recovery of money. The next case to which I must refer is the case of Kedar Nath v. Prahlad Bad A.I.R.[1960] S.C. 218 which was relied upon by Mr. Laud. The facts of that case were somewhat complicated, but I will try to state them in a simplified form. A suit was filed by the appellants for a declaration of their title to certain lands and for possession thereof, as well as for mesne profits and interest. The suit was decreed by the subordinate Judge on the ground that the defendants were mere benamidars of the plaintiff-appellants. Those findings were accepted by the defendants in the High Court, but the defendants raised certain other contentions which had been rejected by the trial Judge. In the plaint the plaintiff-appellants had given their reasons for acquiring the property benami as being that, according to the terms of the lease, ryoti lands taken in the names of the lessee or his relatives and servants were liable to be resumed by the Bettiah Raj after the termination of the lease and that the benami transaction had been entered into in order to avoid that contingency. The defendants, therefore, contended that the appellants' predecessor had taken the lands benami in the names of the defendants, to effectuate fraud on the Bettiah Raj, and the fraud having succeeded, the plaintiffs were not entitled to a judgment. The Supreme Court took the view that since all the facts were known to the parties concerned, the fraud could not be said to have been effected, but that even assuming that there was some illegality committed, the plaintiffs were entitled to succeed because the illegality was not required to be pleaded or proved as a part of their cause of action and the plaintiffs could make out a case of the benami nature of the transaction by proving the source of the money and establishing the status of the benamidars without having to rely upon the illegality. After referring to a passage from the judgment of Du Parcq L.J. in the leading case of Bowmakers, Ld. v. Barnet Instruments, Ld. already cited above, the Supreme Court formulated the correct position in law as follows (p. 218) :

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,...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.

16. The next case which was relied upon by Mr. Laud was the case of Surasaibalini v. Phanindra Mohan : [1965]1SCR861 in which P started certain business with his own funds, but since he was in the employment of the Court of 'Wards and the Service Rules governing him did not permit him to carry on any business, he entered into an agreement with G and held out G as the owner of that business. Income-tax returns in respect of the profits of that business were also made in the name of G, and P so dealt with the authorities as if he was the manager of that business and not the owner thereof. After some years, P was required to leave the town temporarily on medical advice and he entrusted the management of the business to G on the understanding that upon his return G should hand over possession and management thereof to him. After his return, G declined to do so. P brought a suit for declaration of his title and delivery of possession of the business. G contended that the arrangement for holding out G as a nominal owner was made in order to avoid liability to pay income-tax and the agreement was, therefore, invalid and P was not entitled to claim possession of the said business relying upon his own unlawful conduct. It was held by a majority of the Supreme Court that the object of P was to circumvent the service rules and not to defeat the provisions of the Income-tax Act, though tax was in fact evaded thereby, that the transaction on which the plaintiff's claim to possession was founded could not be held to be unlawful, and that the plaintiff as the owner of the business was not prevented from enforcing his title against G, and the order of the lower Court holding in favour of the plaintiff was, therefore, confirmed. The view of the High Court that an arrangement which facilitated the conduct of the business contrary to service rules was not illegal was not challenged before the Supreme Court. The Supreme Court held (para. 12) that where the plaintiff sought to enforce his title to property and it was not an integral part of his pleading which he had to prove to entitle him to relief that there was between him and the defendant an unlawful transaction or arrangement which he seeks to enforce, the plaintiff would be entitled to the assistance of the Court 'even if the initial title of the plaintiff is rooted in an' illegal transaction.' The Supreme Court held that in claiming a decree for possession from the defendant in the case before it, the plaintiff did not plead any invalidity of the transaction under which possession of the business was entrusted to G, but merely pleaded his title to the business, entrustment thereof to G, and the refusal of G to deliver possession when demanded (para. 14). It may be mentioned that Ayyangar J. delivered a separate judgment in which he concurred in the Order, but differed in regard to certain findings of the majority of the Bench in the said case. I do not think it necessary to refer to the judgment of Ayyangar, J.

17. The last decision to which I must refer is that of the Supreme Court in the case of Sita Ram v. Radha Bai. : [1968]1SCR805 The facts of that case were that plaintiff Radha Bai entrusted jewellery of the value of Rs. 32,379-6-0 to her brother Lachmi Narain for safe custody, because in view of the claim made to it by her daughter-in-law Gomatibai, it was considered unsafe for her to keep the jewellery with herself. Gomatibai's claim was however subsequently settled at the intervention of Lachmi Narain himself and an agreement was arrived at between the plaintiff and Gomatibai under which the plaintiff was declared to be the owner of the jewellery in her possession which had been deposited with Lachmi Narain, and Gomatibai was declared to be the owner of the jewellery in her possession. After the death of Lachmi Narain, Radhabai called upon the members of the family of Lachmi Narain to return the jewellery to her, but the reply she received was that the jewellery in question had already been returned to her by Lachmi Narain in his lifetime. The plaintiff, therefore, filed the suit out of which the appeal before the Supreme Court ultimately arose against the heirs of Lachmi Narain for a decree for the return of the jewellery, or payment of its value. That suit was dismissed by the trial Court which held that the jewellery had been returned to Radhabai by Lachmi Narain during his lifetime. On appeal, the High Court of Allahabad reversed that decree and decreed the plaintiff's suit. On further appeal to the Supreme Court, the decree passed by the High Court was confirmed and the appeal dismissed. In doing so, the Supreme Court referred (para. 12) to a passage from Anson on Contract and to the exceptions laid down therein to the maxim in pari delicto potior est conditio defendentis, one of those exceptions being where the plaintiff is not in pari delicto with the defendant. The Supreme Court took the view (para. 13) that the parties in the case before them were not in pan delicto, in so far as Lachmi Narain was under a fiduciary duty to the plaintiff to return the property and he could not, therefore, be allowed to retain that property on the ground that the same had come into his hands as a result of an illegal transaction, having been delivered with the object of defeating the claim of Gomatibai. The judgment in Sita Barn's case is of no assistance for the purpose of the present case in so far as no question of fiduciary relationship arises in the present case.

18. The principle that emerges from the cases discussed above is that, notwithstanding the illegality of an agreement, a plaintiff can succeed in recovering property which was the subject-matter of that agreement if he frames his suit on the strength of his own title and is not compelled to rely upon the illegal agreement in order to obtain relief in that suit. Mr. Parpia, however, sought to distinguish the cases discussed above on the ground that they were cases in which specific property was sought to be recovered. He submitted that the principle just formulated by me applies only where property was sought to be recovered in specie, and not where a suit relates purely to a money claim. Mr. Parpia's argument was that since money is not earmarked and cannot be claimed in specie, there would be no question of its being claimed by a plaintiff on the strength of his own title to it. He submitted that in such cases there is, therefore, no room for the application of the principle that the money can be recovered in spite of the agreement in question being tainted by illegality, if the plaintiff does not have to rely on the illegal agreement for the purpose of obtaining relief at the hands of the Court. Mr. Parpia has contended that the right of the plaintiff in the present case is purely contractual and the principle laid down in the three Supreme Court eases is, therefore, of no application to the facts of the present case. There can be no doubt that as far as the cases of Kedar Rath v. Prahlad Rai and Sita Bam v. Badha Bai are concerned, the claim was to recover the property in specie. As far as the case of Surasaibalini v. Phanindra Mohan is concerned, however, the claim was to recover the business, including the premises, and though that suit could perhaps not be said to be for the recovery of specific property, the judgment in the case shows that it has been dealt with as being a suit for the recovery of possession of the business, including the premises, on the footing of the plaintiff's title to the same and, under the circumstances, that case also may well be regarded as a case for the recovery of property in specie. There are, however, two other cases already cited by me above where the same principle has been applied though they were not cases in which specific property was sought to be recovered., but the claim of the plaintiff in them was a pure money claim. Those two cases are the leading English case of Bow-makers, Ld., as well as Babula's case decided by a Division Bench, of this Court. Moreover, none of the standard works on the subject makes any distinction of the nature propounded by Mr. Parpia and a reference to Chitty on Contracts (23rd. edn.), p. 439, para. 939, Alison on the English Law of Contracts (22nd. edn.), p. 342 and Cheshire on the Law of Contract (7th edn.), pp. 304-306 shows that the principle in question has been applied to the recovery of money as well as to the recovery of chattels or land and a plaintiff can enforce the recovery of the money, chattels or land if he can frame a cause of action entirely independent of the illegal agreement and is not compelled to rely upon the illegal agreement for the purpose of proving his claim. The distinction which Mr. Parpia sought to make between a money claim and a claim to chattels or land, though ingenious, is without legal foundation as the authorities just referred to by me clearly show. I, therefore, hold that the said principle also applies to a money claim like the one in the present suit, and if it could be shown that the plaintiff can found his cause of action in this suit without relying on the alleged illegality of the agreement, he would be entitled to succeed.

19. I must now proceed to consider the questions formulated by me above, viz. whether the agreement in question was illegal as being intended to defraud the revenue, and if so, whether in the present suit, as framed, the plaintiff can succeed without relying on the alleged illegal agreement. As was stated by me earlier in this judgment, the two facts that appear clearly from the averments in para. 3 of the plaint are that the money which was to be advanced to the defendants under that agreement was money which had not been disclosed to the income-tax authorities, and that the said fact was made known by the plaintiffs to the defendants. From these two facts it must follow that the income-tax authorities had already been defrauded at a time anterior, and perhaps long anterior, to the time when that agreement was arrived at. No section of the Income-tax Act has been pointed out to me which imposes a legal obligation on an assessee to disclose or pay tax in a subsequent year on income which had not been disclosed by him in his return for an earlier year. There being no question of subsequent evasion of income-tax as far as that money was concerned, the 'object' of the agreement pleaded in para. 3 of the plaint, when entered into, could not be evasion of income-tax on the amounts that were thereafter to be lent to the defendants pursuant to that agreement. The mere statement that they were moneys- which, when earned, had not been disclosed to the income-tax authorities cannot make the earlier non-disclosure the 'object' or the 'purpose' of the, subsequent advances, since no such purpose could be achieved by that agreement. The stipulations in the agreement pleaded in para. 3 of the plaint that interest was to be paid at the rate of 1 per cent, per mensem and that promissory notes were to be made out and renewed in the names of the benamidars of the plaintiffs, were the conditions on which the plaintiffs were prepared to lend moneys to the defendants, which it was open to the defendants to accept or reject. Neither of them is unusual and neither of them is a part of the 'object' of that agreement. Mr. Parpia for the defendants next contended that, from the facts stated in paras. 3 and 11 of the plaint, I should infer that the 'object' of the agreement pleaded in the said para. 3 was to evade payment of income-tax on the interest that would accrue on the moneys advanced from time to time by the plaintiffs to the defendants pursuant to that agreement. I, however, find no such averment in the plaint, and this being a judgment on preliminary issues, no question of my drawing any inferences can possibly arise as the preliminary issues before me must be decided on the averments in the plaint as they stand. Mr. Parpia nest sought to contend on the basis of the averments in para. 11 of the plaint that the object of the agreement must in any case be inferred to be evasion of wealth-tax on the amounts to be advanced by the plaintiffs to the defendants thereunder. As already pointed out by me above, no such averments are to be found in para. 11 of the plaint and I am not prepared to read any such meaning into the statements contained in that paragraph. Mr. Parpia, however, sought to contend further that the defendants had asked for inspection of the settlement in writing arrived at by the plaintiffs with the income-tax authorities as well as of the revised Income-tax and Wealth-tax Returns filed by the plaintiffs pursuant thereto which have been referred to in para. 11 of the plaint, and that inspection thereof was given by the plaintiffs, and the contents of those revised returns must, therefore, be deemed to be a part of the plaint. I am not prepared to accept that contention of Mr. Parpia. It is well-settled that when particulars are furnished pursuant to an order of the Court, those particulars become a part of the plaint, but there is no corresponding principle that when inspection of a document referred to in the plaint is taken, every statement in such document becomes a part of the plaint. I have, therefore, not permitted Mr. Parpia to take me into the contents of the revised Returns of Income-tax and Wealth-tax filed by the plaintiffs. Moreover, since I am deciding the preliminary issues only on the averments in the plaint as it stands, as repeatedly stated by me above, I am not called upon to arrive at any inferences or conclusions which I might have been able to draw or arrive at if those issues had been tried after evidence was taken at the hearing. In the result, I hold that the object of the agreement pleaded in para. 3 of the plaint was not to evade the payment of income-tax, and the said agreement was not opposed to public policy and illegal or void on that ground.

20. In view of this finding arrived at by me, it is really not necessary for me to consider the second question as to whether the plaintiffs must, in the suit as framed, rely on the alleged illegal agreement in order to recover the moneys which they have claimed. In the event, however, of my being wrong in the view which I have taken above and its being held that the object of the agreement pleaded in para. 3 of the plaint was to defraud the revenue, and the said agreement is, therefore, illegal and void, I would hold that in the suit, as framed, the plaintiffs are compelled to rely upon that agreement for the purpose of recovering the moneys in suit. In the suit, as framed, there is no question of the plaintiffs recovering their moneys on the strength of their title to the same. The plaintiffs' suit, as framed, is that the amounts in question were lent and advanced by them to the defendants, and they can succeed in recovering the same only by relying on the promise to repay contained in that agreement, if repayment has become due under the terms of that agreement. The alleged illegal agreement is, therefore, a part of their cause of action, and had I come to the conclusion that the object of the agreement pleaded in para. 3 of the plaint, was illegal, the plaintiffs' suit would fail. In the view which I have taken above, I must, however, decide issue No. 3 in favour of the plaintiffs and answer the same in the negative.

21. At this stage, Mr. Laud on behalf of the plaintiffs applies that the hearing of the suit on the remaining issues should be adjourned to October 5, 1971 in order to enable the plaintiffs to place - before the income-tax authorities a 'without prejudice offer' received by them from the defendants. I order accordingly. The suit will proceed subject to an overnight part-heard suit, if any, on that day.


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