1. This is an appeal by the defendants in Civil Suit No. 7-B of 1957, which was instituted by the respondent Municipal Committee, Bilaspur, for recovery of amount due on the basis of a contract. The claim was decreed by the trial Court in full.
2. The following facts are not in dispute.
The respondent Municipal Committee had imposed fees on the sale of cattle in Bilaspur at the rate of three pies per rupee on the sale price of such cattle. The right to realise these fees was sold by auction and appellant No. 1 Ramkripal offered a bid of Rs. 50,050/- which was accepted. The contract was duly reduced into writing and appellant No. 1 thus became entitled to realise the fees for the period 1-4-1954 to 31-3-1955. The other appellants stood sureties for appellant No. 1 for payment of the amount due under the contract. Appellant No. 1 paid a sum of Rs. 12,512/- at the time of the auction. He further paid a sum of Rs. 7,299-4-0 till 23-8-1954. The amount under the contract was to be paid in four equal quarterly instalments. The amount payable on 1-7-1954 was not fully paid and the Municipal Committee therefore granted time to appellant No. 1 to pay the balance in three monthly instalments. Even then the amount was not paid and on 8-9-1954 the Municipal Committee gave a notice to appellant No. 1 terminating the contract with immediate effect.
3. The respondent Municipal Committee's case is that the right to realise the fees for the rest of the year was again put to auction and it was sold to Nathu Panwala for Rs. 15,500/-. The Committee therefore claimed the loss caused on resale.
4. The suit was resisted by the defendants on several grounds which need not be stated here, as they are not pressed in appeal. The contention of the appellants-defendants relevant to this appeal is that the imposition of the fees by the Municipal Committee was illegal and ultra vires of its power Accordingly, the Municipal Committee had no right to realise anything on the basis of breach of the contract. On behalf of the sureties, it was pleaded that as the contract was varied by the Municipal Committee without their consent and as notice of revocation of the contract was not given to them, they were not bound to pay anything to the respondent.
5. The trial Court found that although the impost of the fees was illegal, the appellant-defendant No. 1 had enjoyed the rights and derived profits under it. He was, therefore, held estopped from challenging its legality. The contention of the sureties was not accepted and the claim was decreed against all defendants for the full amount.
6. Shri R.S. Dabir for the appellants has raised two contentions in support of the appeal, namely,
(i) That, as the impost was illegal, the contract between the parties was without consideration and no claim for damages on the basis of breach of the contract can be entertained; and
(ii) That the sureties became discharged, as thecontract was varied without their consent and as no notice of revocation was given to them.
7. Point No. (i): When the defendant-appellant No. 1 filed his written statement originally on 18-6-1956 be admitted in paragraph 2 that 'the plaintiff is entitled to levy fees for registration of cattle'. The legality of the fees imposed was challenged before the High Court in Narbadaprasad v. Municipal Committee, Bilaspur, M.P. No. 464 of 1955, D/- 18-10-1956 (M.P.) It was held in that case that the impost of fees on the sale of cattle 'is a tax and not a fee and was therefore beyond the powers of the respondent committee under Section 66(1)(g) of the C.P. and Berar Municipalities Act'. Accordingly, a writ of mandamus was issued against the Municipal Committee prohibiting it from imposing or collecting the tax. After this decision, the defendant-appellant No. 1 introduced paragraphs 16(a) and 16(b) on 27-11-1957 in his written statement challenging the legality of the fees imposed and pleaded that the suit for recovery of damages for breach of the contract was not maintainable.
8. Shri P.R. Padhye for the respondent Municipal Committee has conceded before us that the order in Misc. Petition No. 464 of 1955 is binding on the Municipal Committee, Bilaspur, and it is no longer open to it to re-assert the validity of the imposition. Accordingly, it must be held that the fee amounts to a 'tax' and the procedure for imposition of fees under Section 66 of the Municipalities Act was not applicable to the imposition of such a tax. Consequently, the tax was without authority of law and could not be recovered under Article 265 of the Constitution.
9. Shri Padhye for the respondent Municipal Committee, however, urged that the impost became illegal from the date of the order of the High Court; and as the parties to the contract considered it valid when it was entered into, they are bound by it. We are of opinion that this contention must fail. The decision of the High Court that any impost was beyond the powers of the Municipal Committee, Bilaspur, declares only the existing legal position of the order. The decision does not take effect from the date on which it is pronounced; but its effect is that the imposition becomes illegal from the very start. Our view finds support from the following observations in Mohd. Yasin v. Town Area Committee, Jalalabad, AIR 1952 SC 115:
'If, therefore, the license fee cannot be justified on the basis of any valid law no question of its reasonableness can arise, for, an illegal impost must at all times be an unreasonable restriction and will necessarily infringe the right of the citizen to carry on his occupation, trade or business under Article 19(1)(g).......'
As the power to impose fees on the registration of cattle sold is not justified under any law and as a tax it has not been imposed by the procedure for imposition of taxes, the imposition is illegal from the very inception.
10. The consideration of the contract between the parties was (i) on the part of the defendant-appellant No. 1 to pay a sum of Rs. 50,050/- to the Municipal Committee and (ii) on the part of the Municipal Committee to transfer the right of collecting fees on the sale of cattle. These two promises mutually formed the consideration of the contract from one party to the other. The imposition of fees being illegal, the Municipal Committed was forbidden under Article 265 of the Constitution from realising it. Therefore, the Committee was transferring a right to the defendant-appellant No. 1 which can hardly be considered to be a legal right at all. The Committee itself had no power to realise the fees and the transfer thus gave nothing to the defendant-appellant No. 1. The consideration of the agreement was unlawful within the meaning of Section 23 of the Indian Contract Act as it was something forbidden by law. The contract was, therefore, void under Section 25 of the Contract Act.
11. Shri Padhye also contended that the defendant-appellant No. 1 having taken benefit under the contract was estopped from challenging its validity. On this question, we need only refer to the following observations of their Lordships of the Supreme Court in Sales Tax Officer v. Kanhaiya Lal, AIR 1959 SC 135:
'No question of estoppel can ever arise where both the parties, as in the present case, are labouring under the mistake of law and one party is not more to blame than the other. Estoppel arises only when the plaintiff by his acts or conduct makes a representation to the defendant of a certain state of facts which is acted upon by the defendant to his detriment; it is only then that the plaintiff is estopped from setting up a different stale of facts. Even if this position can be availed of where the representation is in regard to a position in law, no such occasion arises when the mistake of law is common to both the parties.'
It is true that in the instant case when the parties entered into the contract both of them thought that it was valid. This was a common mistake of law committed by them. Nonetheless, no question of estoppel can arise, as the right to realise the fees has been held to be illegal and beyond the powers of the Municipal Committee.
12. A contract, which is illegal, cannot be enforced either by granting specific performance or by awarding damages for its breach, as in either case the Court would be giving effect, to an agreement which is contrary to law. The Court cannot help the parties to enforce the illegal terms. In Mohanlal v. Kashiram, ILR (1950) Nag 105: (AIR1950 Nag 71) this Court went to the length of laying down that:
'Courts are bound to take notice of any ground of illegality appearing on facts stated in a party's pleading or disclosed otherwise though his opponent does not raise it in his pleading.'
Thus, the illegal terms of the agreement cannot be enforced even when there are no pleadings to that effect. In the instant case, however, the defendant-appellant No. 1 has taken the plea expressly in his written statement in paragraph 16(a) and 16(b) which was introduced after the amendment.
13. Section 65 of the Contract Act lays down that when agreement is discovered to be void, or when a contract becomes void, the person who has received any advantage under it is bound to restore it. No plea to this effect was raised by the respondent Municipal Committee after the written statement was amended by the defendant-appellant No. 1. The Municipal Committee has realised Rs. 19,811/- already from the defendant-appellant No. 1 which is nearabout the amount which it could get from him on the basis of working the contract for five months. The determination of the amount payable by the defendant-appellant No. 1 on the basis of working the contract for five months involves several questions of fact; and as the plea was not taken, we do not permit it to be raised for the first time in this appeal.
14. Point No. (ii): In view of our finding on the first point, it is not necessary to consider the contention of the sureties that they became discharged from their liability, as the Municipal Committee varied the contract without their consent as also without giving notice of revocation to them.
15. In the result, the appeal is allowed. The decree of the trial Court is set aside and instead it is ordered that the suit be dismissed. The respondent Municipal Committee shall pay the costs of the appellants in this Court and in the Court below.