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Appana Radha Sri Krishna Rao Vs. V.K.M. Kodandarama Chetti - Court Judgment

LegalCrystal Citation
CourtAndhra Pradesh High Court
Decided On
Case NumberSecond Appeal Nos. 625 to 628 of 1956
Reported inAIR1960AP190
ActsCode of Civil Procedure (CPC) , 1908 - Order 6, Rule 8; Indian Contract Act, 1872 - Sections 23 and 65; Trusts Act, 1882- Sections 84
AppellantAppana Radha Sri Krishna Rao
RespondentV.K.M. Kodandarama Chetti
Appellant AdvocateK.B. Krishnamurthy and ;M.S.R. Subrahmanyam, Advs.
Respondent AdvocateM.S. Ramachandra Rao and ;S.M. Sita Rama Rao, Advs.
DispositionAppeals dismissed
.....order 6 rule 8 of code of civil procedure, 1908 and section 84 of trust act, 1882 - plaintiff commission agent of defendant purchased certain goods on behalf of defendant - plaintiff claiming certain amounts due from defendant notification under rule 81 of defense of india rules prohibiting transfer of these goods outside district - agent aware of said notification - still transported goods in violation of notification - plaintiff no to be given advantage of maxim pari delicto potior est conditio possidentis - held, object of contract of agency was unlawful and plaintiff could not recover amount due under contract. - - the plaintiff claimed that the right of sale which he exercised was 'under the general law relating to commission agents as well as because he had a lien over..........act; and thirdly upon the equitable doctrine that a person who is less guilty of two parties to an unlawful contract should receive the assistance of the court.8. i shall deal first with the contention raisedunder section 65 of the contract act : i shall read thatsection first : '65. when an agreement is discovered to be void, ot 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.'9. it seems to me that the plaintiff is not seeking the restoration to him of any advantage received by the defendants under the agreement of agency or for compensation for such advantage. the section, in my opinion, contemplates a benefit, a gain. an item of.....

Bhimasankaram, J.

1.These four second appeals arise out of four separate suits instituted by the aprrellant. The plaintiff is a resident of Vijayawada doing busi-ness as a commission agent and the defendants in the suits are traders residing at Vellore or Ami in the district of North Arcot. It would be sufficient to set out the facts in only one of the suits in some detail because the facts in all of them are substantially similar and for the purposes of this appeal involve only common questions of law. I shall refer to O.S. No. 37 of 1944 which is the first of these suits,

2. The case of the plaintiff is that an agent of the defendant who came over to Vijayawadn engaged him as a commission agent for the purchase of dry chillies and he purchased for the defendant from several parties at Vijayawada a total quantity of 198 bags of chillies at varying prices between the 15th ana the 18th of February. 1944. The agent himself was present when the purchases were effected, 'verified the weighments, checked the quality and got them stored in the godowns already hired by the plaintiff.' Although the defendant's agent said that he would make arrangements to remove the commodity to his place (and the plaintiff intended to assisH him in doing so as a matter of courtesy), he could not do so as transport of chillies by rail was stopp-ed from 19-2-1944.

The plaintiff was asked to keep the stock in the godowns until the defendant arranged to remove it by rail to his place. The plaintiff advanced to the defendant the entire money for the purchases 'either by paying off or agreeing to pay off the same to the sellers.' The agent of the defendant signed In the plaintiff's account books under the entries relating to the transaction. The defendant was therein debited with the price, the incidental charges relating to the purchases and the commission payable to the plaintiff. There was a stipulation that the defendant should pay interest at Rs. 1-0-6 and also go-down charges.

As the goods were not removed, although the atti relating to them was duly despatched by post the plaintiff to the defendant with a covering letter demanding the money due to him, the plaintiff issued a registered letter on 19-4-1944 demanding payment and informing the defendant that if the amounts were not paid, the plaintiff would sell the chillies and recover from the defendant any balance that may still be due after crediting the sale proceeds to the defendant's account.

As the demand was not complied with and as in fact the defendant sent a reply 'with untrue and untenable allegations' the plaintiff after giving another notice was ultimately constrained to sell the chillies by public auction on 17-6-1944. As a result of the sale, he realised Rs. 5301-12-6 which was duly credited to the defendant. The defendant is still liable to pay a balance of Rs. 3151-10-0. The demand to pay the same not having been met, the present suit was filed for its recovery. The plaintiff claimed that the right of sale which he exercised was 'under the general law relating to commission agents as well as because he had a lien over the goods of his principal and because under law and the contract between the parties, the goods stood pledged as security for the payment of the amount due by the defendant.' He added :

'Further the goods are perishable by nature and would have become spoiled and useless if there was much delay and there was no prospect of the defendant taking delivery of the same before they became deteriorated.'

The substantial defence to the suit was that the plaintiff did not act as a commission agent but as a seller, that the plaintiff was under the contract between the parties bound to despatch the commodity by rail and was to recover the cost by sending the railway receipt endorsed in favour of the defendant and enclosing a hundi drawn on any of the banks at Vellore, the place of the defendant. The plaintiff assured the defendant that he would arrange for transport by rail and asked the defendant to send his agent to look after the arrangements so that he might be present 'to see to the quality of the chillies and assure himself that the correct price was charged.' As the bags were not sent by the plaintiff to Vellore in accordance with the arrangement, the plaintiff himself was guilty of breach of contract and was Liable to pay damages to the defendant. The defendant stated that he filed a suit in the District Munsif;, Court at Vellore for recovery of damages. It is unnecessary to mention in detail the other pleas in the written statement.

3. It may be stated that there were four suits also along with the suits out of which these appeals arise. But we are not concerned in these second appeals with them.

4. Now, at the hearing of the suits, it came out that there was a notification issued by the Collector of Krishna district (within, which Vijayawada is) as early as 7-8-1943 under the powers conferred upon him by R. 81 of the Defence of India Ruleaf prohibiting the 'transport of chillies by road, rail, river, canal or sea from any place within the limits of Krishna district to any place outside the limits of the said district.' Any person who contravened the order was liable to be punished with imprisonment for a period of three years or with fine or with both.

Although no specific issue seems to have been raised based upon this notification, it was contended for the defendants that the suit contracts were void under Section 23 of the Contract Act as being contracts the object of which was unlawful and the plaintiff could not obtain any relief on the basis of such contracts. That such a contention, although not raised in the pleadings can and must be considered by the court when the facts bear it out, is well-settled and is not disputed before me,

5. I may state at the outset that it is unnecessary for the purposes of these appeals to mention any of the findings of fact except one recorded by the court below on the various issues raised in the suits. I shall proceed to consider the arguments of the learned counsel for the appellate court that the plaintiff was aware that the purchases were made with a view to transport the chillies beyond the district of Krishna. I should like to add that this finding besides being a finding of fact and thus invulnerable in second appeal is amply supported by .the evidence. Indeed, it is perfectly clear from the plaint that the plaintiff's case is that he was employed as a commission agent for the purchase of chillies to be transported to the defendant's place which is outside the district of Krishna. .So much would appear from the following allegations in the plaint in-O.S. No. 37 of 1944 : (and there are similar allegations in the other plaints).

'4. The defendant's agent ..... came to Bezwada along with some other merchants and merchant's agents of the North Arcot district and engaged the plaintiff in company with them, as the defendant's commission agent for the purchase of chillies. The defendant's said agent purchased through the plaintiff, 198 bags of chillies at different prices from 15-2-1944 and 18-2-1944. During that period booking was available to the North Arcot district at tlie Bezwada Railway station .....

5. The defendant's agent said at the time of purchase that he would make arrangements to immediately bonk the goods to his place find the plaintiff intended to assist him as a matter of courtesy, but the booking of chillies by rail was suddenly stopped from 19-2-1944.

8. As a matter of convenience and courtesy the moneys payable to commission agents by their principals may sometimes be realised by sending the Railway receipts along with the Hundis through Banks and the plaintiff might have adopted this course if booking was available and if that procedure was possible and suited him. .....

9, Even if it is contended that carrying the goods to the Railway station and consigning them to the defendant's place is one of the duties of a Commission Agent covered by the commission paid to him, even then as booking by railway was stopped and the performance of that duty rendered impossible by an act of State and for causes beyond the Plaintiff's control, this cannot have the effect of wiping off the debt due to the plaintiff by the defendant.'

6. Now therefore, for the purpose of these appeals, I shall proceed upon the footing that the plaintiff was fully aware of the nature of the transactions in which, on his own case, he was acting as a commission agent. The question is whether when an agent for purchase knows at the time he makes the purchase that the goods he is instructed to buy are to be dealt with in a manner prohibited by law, can he enforce any right arising out of the contract of agency? There can be little doubt in my judgment that he cannot. Such a case I apprehend would be covered by Section 23 of the Contract Act which enacts that where the consideration or object of an agreement is unlawful, the agreement is void. According to that section, consideration or object of an agreement is unlawful inter alia where it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law.

The object of the contract of agency in the present case was to buy goods for principals who to the knowledge of the plaintiff to put the matter most favourably to the plaintiff, were to transport them in a manner forbidden by the provisions of the Order issued by the Collector which, it is not denied, has the force of a statute. In other words, the principals and the agent together contemplated an act forbidden by law. That in such circumstances the contract of agenuy is vitiated by the illegality can hardly bo doubted. It is sufficient to quote the following passage from the well-known commentary of Pollock! and Mulla on this point, 8th Edition at page 156 :

'A contemplated unlawful or immoral use of property (including money) to be obtained under a contract is an unlawful object within the meaning of this rule, and this whether such use is part of the bargain or not, and whether the party supplying the property is to be paid out of tho profits of its unlawful use or not. If both parties know of the wrongful or immoral intention, the agreement is void; if the party who is to furnish the property does not know of it, the contract is voidable at his option when he discovers the other party's intent. This is well settled both by English and Indian decisions,' In a footnote reference is made to two Indian decisions : Pragilal v. Ratan Lal, AIR 1931 All 458 (1) : 131 Ind Cas 546 and Shahabuddin Sahib v. Vonkata-ctilam Choliiar, AIR 1938 Mad 911: 1938-2 Mad LJ 523. It is- argued however by learned counsel for tho appellant that the contracts of agency upon which the plaintiff's suits are based are collateral contracts and the mere fact that the plaintiff was aware of the contemplated use to which the commodity that was being purchased was to be put does not effect his rights. Such an argument may well be available to the various parties who sold the chillies to the plaintiff.

They may not know why the chillies were being purchased, but so far as the plaintiff is concerned, he always knew that the chillies he was purchasing were for traders resident outside the district of Krishna and had to be and were intended to be taken out of that district. Indeed the evidence discloses, although it is unnecessary to refer to it, that there were prior transactions between the parties where under the practice referred to in paragraph 8 of the plaint above-quoted was adopted for the realisation of the moneys due to the plaintiff i.e., by despatching them by rail, the plaintiff's dues being realised through the means or a hundi drawn upon a bank at Vellore or Ami as the case may be. I am clearly of the opinion that the object of the contract of agency was unlawful,

7. Now, the next question is whether, in these suits, the plaintiff is seeking to enforce the contract: I have been unable to see any force in the contention that the suits are not for the enforcement of the rights of an agent against his principals. The paffr-sages in the plaint in O. S. No. 37 of 1944 extracted above unmistakably show that the relief sought id based on the contract of agency. This of course was due to the fact that the plaintiff (indeed not even any of the defendants) was unaware of the existence of the prohibitory order of the Collector and therefore of the fact that the contract was thus unlawful.

If no remedy is available to the plaintiff in a court of law, on the basis of the contract then Is there any other remedy available to him? Mr. Krishnamurthy for the appellant argues that his client is entitled to seek relief under one or other of these three heads; -- firstly, under Section 65 of the Contract Act; secondly, under Section 84 of the Trusts Act; and thirdly upon the equitable doctrine that a person who is less guilty of two parties to an unlawful contract should receive the assistance of the court.

8. I shall deal first with the contention raisedunder Section 65 of the Contract Act : I shall read thatsection first :

'65. When an agreement is discovered to be void, ot 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.'

9. It seems to me that the plaintiff is not seeking the restoration to him of any advantage received by the defendants under the agreement of agency or for compensation for such advantage. The section, in my opinion, contemplates a benefit, a gain. an item of property which has gone into the hands of the other party. Unless it can be said that the defendants came into possession of something tangible from tho plaintiff, the plaintiff cannot succeed. The word 'restore' is significant. Tho plaintiff cannot say that he delivered to the defendants any property of his of which he is claiming the return'.

Assuming for the purpose of argument that his case that the property in the Roods passed to the defendants as soon as the commodity was weighed, packed into bags and kept in the godowns of the laintiff is right, still it seems to me that it would 3 inappropriate to say that that fact, bv itself, is an advantage received by the defendants within the meaning of the Section. The section, it is clear, does not contemplate reparation for any loss sustain- ed by one party but only restoration of any benefit which has accrued from the one to the other. If the section is to he read as applying to a case like the present, the defendants would be made liable not for the restoration of an advantage or of compensation therefor but for damages for the loss sustained by the plaintiff.

10. Reference has been made in this connection to tbe decision of a bench of this Court in Siva-ramakrishnaiah v. Venkata Narahari Rao S. A. No. 347 of 1955 : : AIR1960AP186 . The learned Judges were dealing in that case with a claim for recovery of a number of bags of paddy or their value delivered to the defendants under a transaction of sale that violated a prohibition by law against sales to persons without a licence. The learned Judges held that the agreement of sale was illegal, but they upheld the decree which the plaintiff had obtained from the lower courts as one rightly based on Section 65 of the Contract Act upon the construction of which they made the following observations :

'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.' The learned Judges rejected the argument that Section 65 was unavailable in a case 'where the transaction is forbidden by law, opposed to public policy or when it would amount to an offence.' In the view I have already expressed as regards the inapplicability of Section 65 to the present case, it is unnecessary for me to say anything more than that the decision is with great respect to the learned Judges, clearly opposed, in my opinion, to decisions of the Madras High Court which were binding upon the learned Judges.

I may refer in this connection to Venkata Sub-bayya v. Attar Sheik Mastan, 1948-2 Mad LJ 198 i (AIR 1949 Mad 252) Madura Municipality v. Alagi-risami Naidu, ILR 1939 Mad 928 : (AIR 1939 Mad 957) and Srinivasa Aiyar v. Sesha Aiyar, 34 Mad LJ 282 : (AIR 1918 Mad 444). In approving in their decision of the reasoning of the Full Bench in Bu-dhulal v. Deccan Banking Co. Ltd. (S) AIR 1955 Hyd 69 (FB), the learned Judges were in my opinion departing from the views of the Madras High Court. I shall not pause to point out that the reasoning of the Full Bench of the Hyderabad High Court was based upon some decisions of the Privy Council which did not consider the applicability of Section 65 to agreements falling within Section 23 of the Contract Act.

One of the two cases nearest in point deals with a case falling under Section 6 of the Transfer of Property Act and the other with a similar provision in a provincial Act. They were dealing only with a provision which stated that a particular kind of property cannot be transferred or that a particular per-son cannot transfer his property. I shall merely re-mark that the Courts in India are governed by the provisions of Section 65 and not by any principles enunciated by English Courts. Vide Muralidhar v. International Film Co. Ltd., AIR 1943 PC 34 where the Judicial Committee observed :

'Their Lordships are not concerned to make the Contract Act agree in its results with the English Law'. That in cases falling under the Contract Act we are governed solely by the terms of that Act and not by analogous rules of English Law has been recently pointed out also by the Supreme Court. I venture to record my humble opinion that the effect of the view taken in K. Sivarama Krishnaiah v. V. Venkata Narahari Rao, S. A. No. 347 of 1955 : : AIR1960AP186 is to enable a plaintiff indirectly to obtain a relief which he cannot obtain directly, Apart from that, it would seem that according to that decision even when a contract Is void because it is unlawful within the meaning of Section 23 of the Act it would be open to a party to show that al-. though he knew all the facts that render a transaction unlawful when he entered into the transaction, he did not know, as a fact, that it was unlawful a position that, in my view, is clearly subversive of the very foundations on which the administration of justice according to law rests -- that no litigant can plead ignorance of law.

11. I shall not pursue the matter any further except to state, that a claim for restoration of an advantage in cases of contracts that are discovered to be or have become void can rest, to quote the words of their. Lordships of the Privy Council, 'not on any principle or formula of English Law but on the words of the section'. The matter may require, in my opinion, consideration by a Full Bench of this Court when similar question falls to be decided. But in this case, it does not as I have held that no advantage has been proved to have been received by the defendants.

12. I shall now consider the argument of the learned counsel for the appellant based upon Section 84 of the Trusts Act which is in these terms :

'84. Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is note as guilty as the transferee, or effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor.' It is obvious that this section too contemplates the transferee being in possession of property belonging to the transferor. If he comes into possession of any such property, he is to hold it in trust. This section constitutes an exception to the doctrine embodied in the maxim, in pari delicto potior est conditio possi-dentis. It appears to me that the maxim has no application to cases falling under Section 65 of the Contract Act but only to cases falling under this section. In the present case as I have already pointed out. the defendants have nothing in their hands which the plaintiff can claim as his. The plaintiff therefore, cannot avail himself of this provision to obtain the relief he is seeking.

13. This brings me to the consideration of the third contention urged on behalf of the appellant. I must confess at the outset that with every endeavour to follow this argument I have been unable to do so. I should have thought if the plaintiffs claim cannot be rested either under Section 65 of the Contract Act or under Section 84 of the Trusts Act, he must fail. Counsel refers me to the maxim above quoted. But the maxim--it is expressed in two or three ways--only protects a party in actual possession of an advantage; it cannot be the foundation of an enforceable right. A defendant may, in certain circumstances, retain the benefit which he has received. The appellant as a plaintiff cannot seek the aid of this maxim.

14. In my view, there is no substance in any of the contentions urged on behalf of the appellant.

15. These appeals fail and are dismissed with costs, No leave.

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