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Peddi Virayya Vs. Doppalapudi Subba Rao and anr. - Court Judgment

LegalCrystal Citation
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 479 of 1952
Reported inAIR1959AP647
ActsCentral Excise Act, 1944 - Sections 2, 6 and 9; ;Indian Contract Act, 1872 - Sections 23
AppellantPeddi Virayya
RespondentDoppalapudi Subba Rao and anr.
Appellant AdvocateB.V. Subrahmanyam, Adv.
Respondent AdvocateA. Kuppuswami, ;S.K. Sriramulu and ;A.V. Krishna Rao, Advs.
Excerpt: evasion of section 6 - held, court cannot allow recovery of amount advanced in pursuance of illegal contract. (ii) absolute prohibition - sections 6 and 9 of central excises and salt act, 1944 - whether prohibition on dealings in tobacco absolute under act - section 9 of act makes contravention of section 6 an offence specifically - defendant carrying on purchase and sale of tobacco without license as required by section 6 - held, transaction entered into by defendant illegal as prohibition under act is absolute. - all india services act, 1951.sections 8 & 11 & a.p. buildings (lease, rent and eviction) control rules, 1961, rule 5: [v.v.s. rao, g. yethirajulu & g. bhavani prasad, jj] refusal by landlord to receive rent - deposit of rent in court - held, a tenant has the option..........the act, the true legal position has to be appreciated. it is now well-settled that a party to an illegal contract cannot invoke the aid of a court to have such a contract carried into effect as law will not tolerate any party to violate any moral or illegal duties. as a corollary from this principle, if money is advanced for a purpose which is either opposed to morals or law or in furtherance of an illegal transaction such advance is not recoverable having regard to the maxim ex turpi causa non oritur actio. but this is subject to an exception. the law allows locus poenitentiae. so before fraud or an illegal purpose is carried out, the money may bo recovered from the person to whom it was advanced. but the court will not render any assistance in the recovery of the money if there is.....

Chandra Reddy, J.

1. This appeal is brought by the plaintiff against the dismissal of his suit for accounts against the 1st defendant and for recovery of Rs. 6209-11-8 from the 2nd defendant. The main allegations in the plaint were that in the year 1947 the plaintiff employed the 1st defendant to purchase tobacco as his agent from cultivators, that the latter accordingly bought some tobacco which was paid for by the plaintiff and delivered to him in several cases, that he gave Rs. 10,350/- to the 2nd defendant on 11-4-19-17 to be paid to the 1st defendant but the latter acknowledged only a sum of Rs. 5,000/- out of that amount, that the 1st defendant failed to render account of the amounts received by him in spite of repeated demands and that the 2nd defendant had not given any satisfactory answer with regard to the amount entrusted to him.

2. The suit was contested by the 1st defendant inter alia on the ground that the contract between him and the plaintiff was illegal as being opposed to the provisions of the Central Excises and Salt Act. He also denied having deputed the 2nd defendant to bring any money from the plaintiff.

3. The defence of the 2nd defendant was that he was entrusted with a sum of Rs. 5,000/- only which he had duly made over to the 1st defendant and that therefore the plaintiff was not entitled to any relief against him.

4. The trial court dismissed the suit upholding the objections of the 1st defendant. It held that the plaintiff was not entitled to any relief as against the 2nd defendant for the reason that there was no privity of contract between them and this was also contaminated by the illegality of the contract with the 1st defendant.

5. The first point that is debated in this appeal is the applicability of the provisions of the Central Excises and Salt Act, hereinafter referred to as the Act. At the forefront of the argument it is contended that the suit transactions do not fall within the purview of the Act.

6. For an appreciation of the contentions of the parties, it is essential to extract some of the relevant provisions of the Act. 'Commission Agent' is defined in Section 2(a) as 'a person who in the ordinary course of business makes contracts for the sale or purchase of excisable goods for others.' Section 2(k) defines 'wholesale dealer' thus:

'A person who buys or sells excisable goods wholesale for the purpose of trade or manufacture, and includes a broker or commission agent who, in addition to making contracts for the sale or purchase of excisable goods for others, stocks such goods, belonging to others as an agent for the purpose of sale.'

According to Section 2(d) of the Act--

' 'excisable goods' means goods specified in the first schedule as being subject to a duty of excise and includes salt.'

Undeniably tobacco is one of the items listed in the 1st schedule. Section 6 of the Act reads:

'The Central Government may, by notification in the official Gazette, provide that, from such date as may be specified in the notification, no person shall, except under the authority and in accordance with the terms and conditions of a licence granted under this Act, engage in 0--

(a) .....

(b) the wholesale purchase or sale (whether on his own account or as a broker or commission agent) or the storage of any excisable goods specified in this behalf in Part A of the Second Schedule.' The consequences of the infringement of Section 6 are provided in Section 9 which recites:

'Whoever commits any of the following offences, namely :

(a) contravenes any of the provisions of a notification issued under Section 6 or of Section 8, or of a rule made under Clause (iii) of Sub-section (2) of Section 37;

(b) evades the payment of any duty payable under this act;

(c) .....

(d) attempts to commit, or abets the commission of, any of the offences mentioned in Clauses (a) and (b) of this section; shall for every such offence be punishable with imprisonment, for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both.'

7. The argument of Mr. Subrahmanyam, learned counsel for the appellant is that the first defendant does not answer the description of 'commission agent' as defined in Section 2(a) of the Act. It is submitted that an agent to attract that definition should have an ordinary business of his own in the course of which he deals with a particular principal as one o his customers. To support this contention we are invited to consult several dictionaries. The meaning of the word 'course' as given in Chamber's 20th Century Dictionary is 'habitual method of procedure'. Some of the meanings of the word 'ordinary' as contained in the Oxford English Dictionary are 'Regular course of custom or practice belonging to the regular or usual order of course; in an ordinary manner or as a matter of regular practice.'

One of the meanings of the expression in the course of according to the same Dictionary is 'in regular process of; in the ordinary sequence of events.' We do not think these meanings any way lend support to the theory adumbrated by Mr. Subrahrnanyam. The expression 'in the ordinary course of business' is susceptible of one meaning viz., that there should be a series of transactions as distinguished from one transaction. The course of business should consist in making some purchases as an agent. A stray transaction may not be said to constitute an ordinary course of business. It is not essential that the agent should have several customers to fall within the purview of the definition as argued by Sri Subrahrnanyam, It is enough if he acts for one principal.

According to Stroud's Judicial Dictionary (Vol. 3, page 1778) 'a person can be a mercantile agent though he has only one customer, provided that he is acting in the particular transaction in a mercantile capacity'. To hold otherwise would be to deprive the definition of its full content. In this connection the averment in the plaint that the first defendant acted as plaintiff's commission agent cannot be ignored.

8. The next submission of Mr. Subrahrnanyam is that in order to attract the provisions of Section 6 of the Act the agent in addition to acting for a principal should store excisable goods for sate on his own account. This is overlooking the terms of Clause (b) of Section 6 of the Act which embraces purchase or sale as a broker or a commission agent. It is clear from that section that in order to engage in wholesale purchase or sale etc., whether on one's own account or as a commission agent or broker, a licence should be obtained. It is not disputed that a notification in the Official Gazette was issued as contemplated by Section 6. Consequently, the possession of a licence as envisaged in Section 6 is necessary to enable any person either for a wholesale purchase or sale Or storage of any excisable goods specified in Part A of the Second Schedule.

9. It was next contended that the absence of a licence does not vitiate the contract of agency or the transactions which the plaintiff had with the 1st defendant. It is stated that the prohibition contained in Section 6 of the Act is not an absolute one. It only prevents the agent from carrying on business without a licence and does not prohibit others employing him for purchases on commission. If the agent docs not take out a licence he should be punished and people having dealings with him should not be visited with penal consequences, Another part of the same argument was there is nothing to indicate that the plaintiff knew that the defendant had no licence to authorise him to carry on the commission business.

This argument is untenable in the face of the recitals in Ex. B-1 wherein it is specifically stated that since the 1st defendant did not possess a licence either as a broker or as a commission agent to deal in tobacco, he took contract forms signed by the plaintiff as if the plaintiff purchased the tobacco directly from the sellers, though in fact the plaintiff did not purchase direct from them. This clearly establishes that he was aware of the 1st defendant not having a licence and that he actively co-operated with the 1st defendant in evading the provisions of Section 6 of the Act. This argument has no substance and fails.

10. Coming to the first part of the argument, Sections 6 and 9 enact an absolute prohibition. Section 9 renders violation of Section 6 an offence. Both the commission of the offence as well as abetment thereof are made punishable under that section. A person is said to abet when he encourages another or affords help to him in the commission of an act. He may contribute to the commission of the offence either directly or indirectly. So trading without a licence either on one's own account or as a commission agent or to co-operate with or render aid to another to so trade in transgression of the provisions of Section 8 of the AcJ constitutes an offence. If a transaction amounts to an offence it is certainly an illegal one and is governed by Section 23 of the Indian Contract Act.

11. In this context a passage from Craies on Statutes, 5th Edition, page 524, is apposite, and it reads:

'And in considering the effect of a statutory prohibition on a contract, it is always necessary to decide whether the penalty imposed for breach of the statute is meant as a -compensation to the person aggrieved or as a penal sanction. In the former case the statute in effect permits the contract on payment of the penalty, i. e,, it only makes it expensive, in the other, it forbids it in toto.'

12. So the crucial test in deciding whether the prohibition is absolute or not is to find out whether the persons concerned would be guilty of the offence under the Act if they had carried on business without the necessary licence. Section 9 of the Act has made contravention of Section 6 an offence.

13. On this premises the contract entered into between the 1st defendant and the plaintiff for making purchases of tobacco is illegal, being prohibited by the relevant sections of the Act, the true legal position has to be appreciated. It is now well-settled that a party to an illegal contract cannot invoke the aid of a Court to have such a contract carried into effect as law will not tolerate any party to violate any moral or illegal duties. As a corollary from this principle, if money is advanced for a purpose which is either opposed to morals or law or in furtherance of an illegal transaction such advance is not recoverable having regard to the maxim ex turpi causa non oritur actio. But this is subject to an exception. The law allows locus poenitentiae. So before fraud or an illegal purpose is carried out, the money may bo recovered from the person to whom it was advanced. But the Court will not render any assistance in the recovery of the money if there is even a part performance of the illegal contract.

14. The appellant seeks to resist this conclusion by contending that when the illegal agreement is worked out the court will intervene to help the plaintiff by preventing the defendant from retaining the money. In support of this contention reliance is placed on a number of cases, viz., Sykes v. Beadon, (1879) 11 Ch D 170; Srinivasa Aiyar v. Sesha Aiyar, ILR 41 Mad 197: (AIR 1918 Mad 444); Palaniyappa Chettiar v. Chockalingam Chettiar, ILR 44 Mad 334: (AIR 1921 Mad 334); Dhamidhar v. Khanji Sahay, ILR 27 Pat 287: (AIR 1949 Pat 250); Bowmakers Ltd. v. Barnet Instruments Ltd., (1944) 2 All ER 579 and Bhola Nath v. Mul Chand, ILR 25 All 639.

15. We do not think that (1879) 11 Ch D 170 enunciates any proposition which is favourable to the appellant. On the other hand it furnishes answers to the contention of the appellant. It looks that the argument on this topic is borrowed from the dicta of Lord Cottenham in Sharp v. Taylor, (1849) 2 Ph 801 referred to by Jessel, M. R. in the report and it is to the effect that when the transaction alleged to be illegal is completed and closed it will not in any manner be affected by what the court is asked to do. Jessel, M. R. expressed dissent from this view as being opposed to authority and principle and observed that it was not sufficient to say that the transaction is concluded as a reason for the interference of the Court. If that were the reason, it would be lending the aid of the Court to assert the rights of the parties in carrying out and completing an illegal contract. In (1879) 11 Ch D 170 relief was refused because it amounted to damages for breacli of performance of an illegal act. Thus this authority does not come to the rescue of the appellant.

15a. In ILR 41 Mad 197: (AIR 1918 Mad 444), the plaintiff paid the defendant a sum of Rs. 400/-under an agreement for the marriage of the latter's son with his sister. But the marriage did not take place and hence the plaintiff's suit for the recovery of the money. In spite of the contention of the defendant that it was the plaintiff that committed the breach, the High Court held that the plainfiff was entitled to get back the money because the agreement was wholly executory and no material part of the illegal contract was accomplished and consequently, the defendant could not plead that he could hold the money for the purpose of the illegal contract.

This decision had merely adopted the doctrine embodied in Petherpermal Chetty v. Muniandy Servai, ILR 35 Cal 551 that if the purpose of the fraud was not achieved, there was nothing to prevent the plaintiff from repudiating the transaction and recovering the possession of the property. In such an event the plaintiff is not trying to carry out the illegal transaction hut seeking to put himself and the defendant, as far as possible, in the same position as they were in before the contract was concluded, and it is the defendant that relies on the illegal contract to keep the money by means of it.

16. ILR 27 Pat 287: (AIR 1949 Pal 250) does not carry the appellant any further as it contains the same principle. In ILR 44 Mad 334: (AIR 1921 Mad 334), there was an agreement between the plaintiff, who was one of the judgment-debtors and the defendant that he should get the assignment of a decree obtained against the plaintiff and some others on his behalf, put it in execution and make over the proceeds thereof to the plaintiff After successful execution the defendant refused to pay the amount so realised by him from the execution of the decree, pleading that such an agreement was prohibited by Order 21, R, 16 C. P. C., and hence the plaintiff could not recover this amount.

The defence was negatived mainly on the ground that the purchase of a decree by one of the judgment-debtors was not illegal. Another reason given by Abdur Rahim J., was that it was a case which fell within the category of cases mentioned in the Judgment of Jessel, M. R. in (1879) 11 Ch. D. 170, that in oases where the contract is at an end or is put an end to, the Court will intertere to prevent those who have under the illegal contract obtained money belonging to other persons on the representation that the contract was legal, from keeping that money. The second ground is inapplicable to the present case because it is not the plaintiffs case that there was any representation as regards the legality of the contract in question.

Further the other learned Judge Oldfield J., based his judgment chiefly on the ground that the contract by which the parties were associated was not in itself unlawful. Thus the main ground of decision was that the transaction was not vitiated by any transgression of any provision of law. This ruling is so understood in Ramanalhan Chetti v. Muthu Velliappa Chetti, 52 Mad LJ 59: (AIR 1927 Mad 3221.

17. ILR 25 All 639 also does not lay down any principle which would help the appellant. In that case money was received by the defendant as an agent on behalf of the plaintiff from third patties arising out of a wagering contract. In a S'tit for recovery of that amount the illegality of the contract between the plaintiff and the third party was put forward as a bar to its maintainability. This plea did not find favour with the Allahabad High Court as it was of opinion that it was not open to the defendant to retain the monies which he had received on behalf of the plaintiff. There is distinction in a case where one of the parties to an illegal contract is suing a third person to recover the monies received on his behalf under an illegal contract and it is this principle that is embodied in the case under citation. On this topic it is put thus in Story's Law of Agency, 9th Edition Page 422;

'But in all these cases, so put, if the agent is connected with the original illegal transaction, or the advance is a part of the original scheme, and in furtherance of it, it will not be recoverable trom the principal; for then the agent is properly to be deemed a partaker in the illegality, particeps criminls.'

ILR 25 All 639 only illustrates this distinction. In that case the defendant was not a party to the illegal contract. He received money for the use of the plaintiff from a third party. In such a situation he had not made out any title to the money and he had to make it good to the plaintiff. This principle is also stated in similar words in, (1879) 11 Ch D 170.

18. The plaintiff also cannot derive any assistance from (1944) 2 All ER 579. There though the agreement with regard to certain machine tools was found to be illegal the defendant was directed to return the plaintiff the tools which were delivered to him in pursuance of the illegal agreement because the claim was only on the basis of ownership of the tools and no reliance was placed on the agreement which was found to be illegal.

19. This is not a case where recovery of the money is dissociated from the illegal transaction. The very action is founded on the dealings which are contaminated by illegality. The liability to accounting arises out of prohibited transaction. In fact in the plaint it is stated that the cause of action against the 1st defendant arose in February 1947 at Nagulapadu, when the first defendant agreed to purchase tobacco as commission agent and since July 1947 when the agency terminated. Thus the recovery of the money and the agency are inextricably connected. It is not possible to regard this as a collateral transaction independent of illegal agency. In the premises the transaction which the plaintiff had with the 1st defendant amounted to an illegal contract being in contravention of Section 6 of the Act and therefore he could not maintain the claim to recover any part of the money which he advanced in furtherance of the said illegal contract.

20. It follows that the judgment under appeal so far as it relates to the 1st defendant is correct and cannot be disturbed. In the result, the appeal is dismissed as against the 1st defendant.

21. With regard to the 2nd defendant we think we cannot allow the judgment to stand. The main ground of decision as against him was that there was no privily of contract between him and the plaintiff, as mentioned above. In doing so, the trial Court did not have regard to the fact that there was no such pleading by the 2nd defendant, the line taken up by him being that he paid the 1st defendant the whole amount that was entrusted to him by the plaintiff. In this respect, the attitude of the 1st defendant was that the 2nd defendant did not act for him and that he did not constitute him his agent or a messenger for collecting money from the plaintiff.

On these pleadings the only issue that could be framed was whether the 2nd defendant acted as the agent or messenger of the 1st defendant in getting the money from the plaintiff. Another Question that arises on the written statements is whether there is misjoinder of causes of action and parties which has not been gone into by the trial Court. There is also no discussion as to how the entrustment of the money to the 2nd defendant is vitiated by the illegality of the contract between the plaintiff and the 1st defendant. This matter has not received the attention it needed at the hands of the trial Court.

22. For these reasons the judgment and decree in regard to the 2nd defendant is set aside and the case is remanded to the trial Court for disposal according to law. The issues to be tried in the suit arc whether there is misjoinder of causes of action or parties by reason of clubbing the reliefs against the 1st and 2nd defendants; whether the second defendant acted for the first defendant in this transaction; and what was the amount that was received by him and lastly, how far the payment of the money by the plaintiff to the 2nd defendant to be paid to the 1st defendant is affected by the relevant provisions of the Central Excises and Salt Act, 1947. The parties will bear their own costs here and in the lower Court. The appellant will get refund of the court-fee in regard to his appeal as against the second defendant.

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