1. This appeal is filed against the decree passed in Special Suit No. 14 of 1967 on the file of the Civil Judge. Bagalkot. The said suit was originally instituted as Original Suit No. 17 of 1966 on the file of the Civil Judge. Bijapur and it came to be transferred to the file of the Civil Judge, Bagalkot. The suit was instituted on 10-6-1966.
2. The suit was instituted by the State of Mysore, the Director of Agriculture and the Cotton Superintendent, Bijapur for recovery of a sum of Rupees 15,000/- together with interest thereon jointly and severally from defendants 1 to 14. The case of the plaintiffs was that defendant 1 borrowed a sum of Rupees 20,000/- from the Cotton Superintendent, Dharwar, in the year 1951 on two dates. On 7-7-1951 he borrowed a sum of Rupees 5,000/- and on 20-7-1951 he borrowed the remaining sum of Rs. 15,000/-. In lieu thereof he executed a bond on 19-9-1951 Exhibit P-2 in favour of the Cotton Superintendent undertaking to repay the sum of Rs. 20,000/- borrowed by him as mentioned earlier, along with interest at 74 per cent per annum. That on 22-4-1952 defendant 1 repaid a sum of Rupees 5,000/- and executed another bond on 2-8-1952. Exhibit P-l in favour of the Cotton Superintendent acknowledging the outstanding liability under the bond dated 19-9-1951 end undertaking to repay the same before 31-10-1952. On that occasion he offered defendant 2 and one Vittalchand Talati as sureties for the repayment of the said amount. It is stated that Vittalchand Talati died before the institution of the suit leaving behind him defendants 3 to 14 as hid legal representatives. The above mentioned sureties were alleged to have agreed to become the sureties for the due payment of the amount payable by defendant. It appears that the plaintiffs resorted to certain proceedings under the Land Revenue Code for recovery of the amount due by defendant 1 under the above transaction on his committing default in payment of the same. It is not disputed that those pro-feedings became infructuous and the plaintiffs were not able to recover any amount from defendant 1 in those proceedings. Thereupon the plaintiffs instituted the above suit for recovery of the outstanding principal amount of Rs. 15.000/- and the interest thereon from defendants.
3. The principal contention urged by the defendants in the written statement was that the agreement entered into by them was not in conformity with Article 299(1) of the Constitution of India and therefore, the plaintiffs were not entitled to recover any amount thereunder. The fact that defendant 1 received the sum of Rs. 15,000/- under the transaction relied on by the plaintiffs and evidenced by Exhibits P-l and P-2 was however not disputed. The trial Court was of the opinion that the suit was liable to be dismissed as the provisions of Article 299(1) of the Constitution had not been complied with It accordingly dismissed the suit. Aggrieved by the decree passed by the Court below, the plaintiffs have filed this appeal.
4. Sri N. Venkatachala, the learned Addl. Government Advocate, contended that although there had not been compliance with Article 299(1) of the Constitution in this case, the suit should have been decreed by the Court below at least against defendant 1 who has received the benefit under the transaction on the basis of Section 70 of the Indian Contract Act (hereinafter referred to as the Act). Section 70 of the Act reads as follows:
''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 condensation to the former in respect of or do to restore, the thing so done or delivered.'
5. Reliance was placed by Sri Venkatachala on the decision of the Supreme Court in State of West Bengal v. B K. Mondal & Sons. : AIR1962SC779 and Mulamchand v. State of Madhya Pradesh. : 3SCR214 . Sri T. J. Chouta, the learned counsel for the respondents contended that since the claim of the plaintiff was not based on Section 70 of the Act in the Court below, they should be permitted to urge the said plea in this Court. As we find that all the relevant facts necessary to give a decision on the aforesaid question are either admitted or proved, we feel that no prejudice, would be caused to the defendants if we allow the plaintiffs to raise the said plea even though it may be for the first time at the time of arguments in this appeal. We therefore, allow the above plea to be raised in this appeal.
6. It is not disputed that defendant 1 received a sum of Rs. 20,000/- in the year 1951 and out of that only a sum of Rs. 5,000/- has been repaid. It follows that a sum of Rs. 15,000/- advanced by or on behalf of the plaintiff to defendant 1 is still outstanding. It is not the case and cannot be the case of the defendants that the plaintiffs advanced the above amount gratuitously. It cannot also be denied that defendant 1 had the benefit of the said sum. In the circumstances, we are satisfied that all the three necessary ingredients which have got to be established to make out a case under Section 70 of the Act are either proved or admitted in this case.
7. It is no doubt true that the court below has held that Article 299(1) of the Constitution has not been complied with in this case and that aspect of the case has not been canvassed by the plaintiffs before us. The question however is whether such non-compliance would make the claim of the plaintiffs untenable. In : AIR1962SC779 , the Supreme Court while dealing with a case in which Section 175 of the Government of India Act, 1935 which was similar to Article 299 of the Constitution of India arose for consideration observed as follows:--
'It is well known that in the functioning of the vast organisation represented by a modern State Government officers have invariably to enter into a variety of contracts which are often of a petty nature. Sometimes they may have to act in emergency, and on many occasions, in the pursuit of the welfare policy of the State Government Officers may have to enter into contract orally or through correspondence without strictly complying with the provisions of Section 175(3) of the Act. If. in all these cases what is done in pursuance of the contracts if for the benefit of the Government and for their use and enjoyment and is otherwise legitimate end proper Section 70 would step in and support a claim for compensation made by the contracting parties notwithstanding the fact that the contracts had not been made as required by Section 175(3). If it was held that Section 70 was inapplicable in regard to such dealings by Government officers it would lead to extremely unreasonable consequences and may even hamper, if not wholly, bring to a standstill the efficient working of the Government from day-to-day. We are referring to this aspect of the matter not with a view to detract from the binding character of the provisions of Section 175(3) of the Act but to point out that like ordinary citizens even the State Government is subject to the provisions of Section 70, and if it has accepted the things delivered to it or enjoyed the work done for it, such acceptance and enjoyment would afford a valid basis for claims of compensation against it. Claims based on a contract validly made under Section 175(3) must, therefore, be distinguished from claims for compensation made under Section 70 and if that distinction is borne in mind there would be no difficulty in rejecting the argument that Section 70 treats as valid the contravention of Section 175(3) of the Act. In a sense it may be said that Section 70 should be read as supplementing the provisions of Section 175(3) of the Act.'
The above view has been reiterated by the Supreme Court in : 3SCR214 as follows: --
'The principle is that the provisions of Section 175(3) of the Government of India Act. 1935, or the corresponding provisions of Article 299(1) of the Constitution of India are mandatory in character and the contravention of these provisions nullifies the contracts and makes them void. There is no question of estoppel or ratification in such a case.
The reason is that the provisions of Section 175(3) of the Government of India Act and the corresponding provisions of Article 299(1) of the Constitution have not been enacted for the sake of mere form but they have been enacted for safeguarding the Government against unauthorised contracts. The provisions are embodied in Section 175(3) of the Government of India Act and Article 299(1) of the Constitution on the ground of public policy on the ground of the protection of general public and these formalities cannot be waived or dispensed with.........But if money is deposited and goods are supplied or if services are rendered in terms of the void contract, the provisions of Section 70 of the Indian Contract Act may be applicable. In other words if the conditions imposed by Section 70 of the Indian Contract Act are satisfied when the provisions of that section can be invoked by the aggrieved party to the void contract.........'
The 'void contract' referred to in the above case is one which has been entered into without duly complying with the provisions of Article 299(1) of the Constitution or Section 175(3) of the Government of India Act. 1935.
8. In both the above decisions of the Supreme Court, it was held that the Government would be liable to pay the amount to the party who had entered into a contract with the Government, by way of compensation to the work done by him or the goods supplied by him to the Government even though the agreement in question was not in accordance with Section 175(3) or Article 299. If that is so, the position of defendant 1 who has received a benefit under such an agreement cannot be different. He is equally liable to return the benefit he has received under the agreement. Hence we are of the opinion that the dismissal of the suit as against defendant 1 by the court below is unsustainable.
9. The position of the other defendants is however different from that of defendant 1. As already mentioned, defendant 2 is a surety and defendants 3 to 14 are the legal representatives of the other surety. It is not the case of the plaintiffs that defendant 2 and the other surety Vittalchand Talati had derived any benefit under the transaction. The expression 'benefit' in Section 70 of the Act should be understood as referring to a benefit directly derived by the person against whom the claim is made. Since the agreement on the basis of which action is taken as against defendant 2 and the estate of Vittalchand Talati in the hands of defendants 3 to 14 is not an enforceable agreement and since their case does not come within the scope of Section 70 of the Act. the suit as against them has to be dismissed.
10. The plaintiffs have claimed a sum of Rs. 13.500/- by way of interest on the sum of Rs. 15,000/- in respect of the period anterior to the institution of the suit. The said claim is made on the basis of the agreement As it has been held that the agreement in question is unenforceable, the claim for past interest on the above basis is unsustainable.
11. In the result, the judgment and decree of the court below are set aside. We hereby make a decree against defendant 1 only for a sum of Rupees 15,000/- with current interest at six per cent per annum from the date of suit till date of payment. The suit as against the other defendants is dismissed.
12. As the parties have succeeded and failed in part, there will be no order as to costs in this appeal. Defendant 1 shell however pay proportionate costs to the plaintiffs in the trial Court.