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Babulal Agarwala Vs. Vijaya Stores, Firm - Court Judgment

LegalCrystal Citation
SubjectContract
CourtOrissa High Court
Decided On
Case NumberFirst Appeal No. 17 of 1949
Judge
Reported inAIR1955Ori49; 21(1955)CLT1
ActsContract Act, 1872 - Sections 23, 56 and 65; Foodgrains Control Order, 1942; Orissa Foodgrains (Control of Movements and Transactions) Order, 1943
AppellantBabulal Agarwala
RespondentVijaya Stores, Firm
Appellant AdvocateM.S. Rao, Adv.
Respondent AdvocateD. Mahanty, Adv. for ;R.K. Das, Adv.
Cases ReferredBehari Lall Shaha v. Jagodish Chunder
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 173(1) proviso; [d. biswas, amitava roy & i.a.ansari, jj] appeal without statutory deposit but within limitation/or extended period of limitation maintainability - held, if the provision of a statute speaks of entertainment of appeal, it denotes that the appeal cannot be admitted to consideration unless other requirements are complied with. the provision of sub-section (1) of section 173 permits filing of an appeal against an award within 90 days with a rider in the first proviso that such appeal filed cannot be entertained unless the statutory deposit is made. the period of limitation is applicable only to the filing of the appeal and not to the deposit to be made. it, therefore, appears that an appeal filed under section 173 cannot.....panigrahi, c.j.1. this appeal raises a question of some public importance. by an agreement, ext. 1, dated 17-9-1843, the plaintiff-appellant entered into a contract with the defendant-firm of messrs. vijaya stores, to supply paddy to the latter who was admittedly the purchasing agent on behalf of the government of orissa. in pursuance of this agreement the plaintiff supplied 3346 maunds (1673 bags) of rice and 26 maunds (13 bags) of paddy between 30-9-1943 and 8-10-1943, though the contract was for the supply of at least 40,000 maunds of rice by 8-10-1943. the plaintiff also deposited a sum of rs. 5000/- as security for the performance of the contract. the plaintiff revoked the contract by a letter exhibit 3(a) dated 4-10-1943, on the ground that the agreement became impossible of.....
Judgment:

Panigrahi, C.J.

1. This appeal raises a question of some public importance. By an agreement, Ext. 1, dated 17-9-1843, the plaintiff-appellant entered into a contract with the defendant-firm of Messrs. Vijaya Stores, to supply paddy to the latter who was admittedly the purchasing Agent on behalf of the Government of Orissa. In pursuance of this agreement the plaintiff supplied 3346 maunds (1673 bags) of rice and 26 maunds (13 bags) of paddy between 30-9-1943 and 8-10-1943, though the contract was for the supply of at least 40,000 maunds of rice by 8-10-1943. The plaintiff also deposited a sum of Rs. 5000/- as security for the performance of the contract. The plaintiff revoked the contract by a letter Exhibit 3(a) dated 4-10-1943, on the ground that the agreement became impossible of performance owing to the failure of the defendant to obtain a license for the plaintiff.

There was an exchange of some registered correspondence between the parties, and eventually the suit giving rise to this appeal was instituted in January, 1944 for the recovery of the price of rice and paddy supplied to the defendants estimated at Rs. 47,026/-, for refund of the sum of Rs. 5,000/- deposited as security, and for certain other miscellaneous claims, the total amount claimed being Rs. 59,962/-. The defendant raised several pleas in answer to the plaintiff's claim and denied his liability for breach of contract or for compensation for failure to perform the contract. He made a counter-claim for damages on the ground that the plaintiff was wholly responsible for the non-performance of the contract. He also pleaded that the agreement, Ext. 1, was void 'ab initio' as the plaintiff was not a licensed dealer and that the agreement, being in the nature of a dealing 'in futures in foodgrains' was prohibited under the provisions of the Food-grains Control Order, 1942.

2. The learned Subordinate Judge found that the plaintiff had supplied to the defendant 3346 maunds of rice and 26 maunds of paddy and that he was entitled to claim Rs. 47,026/- being the value thereof. But he was of the view that the plaintiff was not entitled to a decree as the agreement to sell was void. He also rejected the defendant's counter-claim to be reimbursed for the loss sustained by him on the ground that the contract was illegal and void. The plaintiff was given a decree for Rs. 6106/- only with corresponding costs, and the rest of his claim was dismissed. It is against this judgment of the learned Subordinate Judge, that the plaintiff has come up in appeal.

3. The findings of the learned Subordinate Judge, except on the issue of the illegality of the agreement, Ext. 1, are not contested before us. We are, thus, concerned only with the issue relating to the legality of Ext. 1 in this appeal.

4. It is argued that the purpose of the agreement being to sell rice which was a controlled commodity, failure to comply with the provisions of the Foodgrains Control Order, 1942, would render the agreement void as it was a contract forbidden by law. The appellant's reply to this contention is that the agreement at its inception was not illegal and that the defendant is liable to return the advantage received by him under the agreement before it became impossible of performance. We have, therefore, to examine the provisions of the Foodgrains Control Order in order to test the validity of this argument.

5. Under Rule 81(2) of the Defence of India Rules the Central Government promulgated an Order called the Foodgrains Control Order, 1942. Clause 3 of that Order provided that:

'No person shall engage in any undertaking which involves the purchase, sale, or storage for sale in wholesale quantities of any Foodgrain, except under and in accordance with a license issued in that behalf by the Provincial Government or by an officer authorised by the Provincial Government in this behalf'.

Rice and paddy were admittedly commodities specified in the Schedule to the said Order, in respect of which any undertaking referred to in Clause 3 was prohibited except under and in accordance with a license. Clause 7(a) of the Order provided a penalty for contravention of the provisions of Clause 3. On 15-9-1943, the Governor of Orissa promulgated an Order entitled the Orissa Foodgrains (Control of Movements and Transactions) Order, 1943, prohibiting the movement or transport of foodgrains by rail, road or river, from any place in the province to any place outside it, except in accordance with a permit Issued by the Director of Food Supplies. Clause 4(i) of this Order prohibited the purchase in wholesale quantities of Foodgrains by any person except as an authorised agent of the Provincial Government or as a sub-agent of such agent approved by the Government. Clause 4(ii) similarly prohibited the sale in wholesale quantities to any person except to an authorised agent or sub-agent,

Clause 6 of the Order says that

'every future in foodgrains entered into before the commencement of this Order and outstanding for settlement shall be settled at the prevailing market rate at the close of the transactions on the date of coming into force of this Order'.

A 'future in foodgrains' is defined as meaning

'any agreement relating to the purchase or sale of foodgrains made, on a forward basis and providing for delivery at some future date and payment of margin on such date or dates as may be expressly or impliedly agreed upon by parties'.

Clause 7 declared all contracts in the nature of 'options in foodgrains' as void and unenforceable at law.

The learned Subordinate Judge held that Ext. 1 is a contract in the nature of 'a future in foodgrains' and is, therefore, hit by the Foodgrains Control Order, it is, however, conceded by both parties that the view taken by the learned Judge is not tenable and that Ext. 1 is not a transaction in 'futures in foodgrains'. The learned Subordinate Judge also held that the stock of rice and paddy supplied by the plaintiff to the defendant had been acquired by him after 15-9-1943, and in contravention of the Orissa Foodgrains (Control of Movements and Transactions) Order and as the procurement of the controlled commodities was illegal the plaintiff could not claim any relief.

The learned Judge relied on the case of --'Hadi Bandhu Behera v. Gopal Sahu', AIR 1943 Pat 374 (A), a case relating to the transfer of a licensed excise shop. It was held in that case that as a transfer or sub-lease was prohibited under Rule 143 of the Excise Rules, the plaintiff was not entitled to a refund of the money advanced by him. The principle of law laid down in that case is that a Court of law will not aid persons in enforcing the performance of an illegal contract, or assist them to recover back property which they have given under such an illegal contract, when the persons and parties to the contract are themselves in 'part delicto' in procuring this illegality. The learned Subordinate Judge was further of the view that Section 65 of the Contract Act could not be invoked in support of the plaintiff's case as both parties knew at the time of the agreement that it was not only void, but also against law.

6. The agreement, Ext. 1 is dated 17-9-1943, and was entered into two days after the Orissa Foodgrains (Control of Movements and Transactions) Order, 1943 came into force. Both parties were aware that the Central Government's Order of 1942 was also In force and that any contract In respect of rice or paddy was prohibited by law except in accordance with the provisions of that Order. The terms of the agreement also clearly indicate that the defendant-firm undertook to obtain a license to enable the plaintiff to carry out the terms of the agreement as stipulated between them.

I would quote below certain clauses of the agreement relevant for the purpose:

'Clause 6-- That the second party will not be held responsible for any breach, if there is obstruction, restriction or limitation imposed on them either legally or illegally by any authority, or for legal difficulties'. .

'Clause 7-- That the first party hereby expressly authorises the second party to appoint agents and employees to make purchases and that such purchases will be treated as bona fide purchases on behalf of the first party, and if such purchases are in any way obstructed by the local authorities, the second party will not be liable for any compensation',

'Clause 8-- If the removal of goods is obstructed by the local people or by Government authorities then the first party will move the local Government for its speedy removal, and if the goods be available at such places where it could be transported to the nearest railway station at a reasonable time, then the second party will at once intimate the first party and the first party will make the necessary arrangements to take delivery of the stock and make payment at the place where the goods are lying.'

'Clause 10-- That the first party will be solely responsible and liable for any legal action that may be taken while transacting business of the first party.'

Clause 12-- That the first party will obtain permission from the Government for the second party to purchase, supply and deliver at the railway station all the goods purchased by the second party'.

It is obvious from these terms that the responsibility for the performance of the contract in accordance with law, was undertaken by the first party, namely, the plaintiff was to carry out the terms of the contract only in accordance with the requirements of law. The defendant also undertook to obtain permission from the Government for the plaintiff to purchase, supply and deliver the commodity. There is nothing in the terms of the agreement suggesting any intention to contravene or evade the provisions of the Control Order. Section 23, Contract Act declares the consideration or object of an agreement as unlawful if it is forbidden by law, or is of such a nature that, if permitted it would defeat the provision of any law. If the object of the agreement is unlawful and the agreement is void under Section 24 (sic). Did the parties, in the present case, contemplate doing anything which was forbidden by law? Far from attributing any such intention to the parties, the agreement makes it clear that the parties were conscious of the prohibition enacted by law and expressly provided for acting in accordance with the requirements of law. Nor can it be said that if the contract were to be performed as contemplated it would defeat the provision of any law -- for the agreement expressly stipulates that the defendant should obtain a license to enable the plaintiff to supply rice.

7. It was urged on behalf of the appellant that the Foodgrains' Control Order dues not declare such contracts illegal as it only imposes a penalty in the event of a breach of the statutory provisions and that the enforcement of the penally is the only remedy for the breach. We have to see whether the agreement in this case is prohibited either expressly or by implication. I should like to refer in this connection to what Lord Wrenbury said in -- 'Victorian Daylesford Syndicate v. Dott', (1905) 2 Ch 624 (B)

'for this purpose statutes may be grouped under two heads, those in which a penalty is imposed against doing an act for the purpose only of the protection of the revenue and those in which a penalty is imposed upon an act, not merely for revenue purposes but also for the protection of the public'.

If one of the objects of the statute is the protection of the public, then the act must be taken to have been impliedly prohibited by the Statute and is illegal. There are several Acts which control particular transactions and prescribe the issue of a license, before the prohibited act is undertaken. Licenses under the Tolls Act, the Forest Act, the Municipal Act, are all instances falling under this group. On the other hand, there are other statutes which prohibit transactions in the interest, not only of revenue but of public health or morality, such as the Excise Acts and Salt Acts. It cannot be seriously disputed that the Food-grains Control Order is one falling under the second category, and any contract in violation of the provisions of that Order would clearly be illegal and void. While, therefore a contract to do anything forbidden by law is illegal and void, there is authority for the proposition that a contract to obtain a license and do a thing in accordance with law is not illegal. See -- 'Narayanamurthy v. Subrahmanyam', AIR 1928 Mad 1197 (C).

There the plaintiffs and the defendant entered into a partnership for the purpose of selling paddy and the contract was to carry on the toddy-shop business for which they hoped at a future date to obtain a license. Such a contract was held by Reilly J., to be legal and this view was approved in a later Pull Bench decision of the Madras High Court in -- 'Ramanayudu v. S. Seetaramayya', AIR 1935 Mad 440 (D). In another Full Bench case of the same High Court, -- 'Velu Padayachi v. Sivasooriam Pillai', AIR 1950 Mad 444 (E) the same principle of law was reaffirmed, and Horwill J., delivering the opinion of the Full Bench observed as follows referring to the dictum of Reilly J. in AIR 1923 Mad 1197 (C) :

'There is nothing in this statement to which objection can be taken provided as pointed out by the learned Chief Justice in the Full Bench decision of AIR 1935 Mad 440 (D) that it is intended at a future date to get a license in the names of the partners'.

We would accordingly hold that the cases relied on by the respondent's counsel are all distinguishable on the ground that the object of the agreements in those cases was to do an act prohibited by law, while the agreement in the present case was one contemplated to be carried out in accordance with law. We have, therefore, arrived at the conclusion that there is nothing in the terms of the agreement Exhibit 1 which would render it illegal and void.

8. The agreement, Ext. 1, may also be considered from another aspect. The preamble to the agreement says that the defendant-firm appointed the second party as

'their sole agents for the purchase of rice and paddy from Orissa, and supply to the first party on the following terms......'

In accordance with the terms of the agreement the defendant addressed a letter to the District Officer on the same date, viz., 17-9-1943, intimating the fact that the plaintiff had been appointed their sub-agent and would be acting on their behalf in the District and requesting that the plaintiff may be recognised as such.

On the next day, that is, 18-9-1943, the District Officer, Purl, replied in Ext. A (1)-2 to the defendant, informing him that he had been appointed purchasing Agent for certain thanas including Khurda and Jatni, and directed delivery of the rest of the paddy purchased by him, to Messrs. Lingaraj Sahu and Rajen Sahu at Jatni. The District Officer also says that the Police Officers were instructed to give necessary help to the defendant. The plaintiff then paid a deposit of Rs. 5000/- to the defendant, and Ext. 5, dated 21-9-1943, was passed by the Vijaya Stores acknowledging receipt of the sum 'for distribution among the sub-dealers undertaking supply of rice and paddy to Mr. Agarwala'.

On the next day, viz., 22-9-1943 the plaintiff wrote a letter (Ext. 3) complaining of failure on the part of the defendant to obtain a permit for purchase of rice and paddy on his behalf. The letter concludes with the following words:

'Here we submitted your authorising letter (wherein you have authorised us to purchase rice and paddy on your behalf) to the S. D. O. Khurda, and showed him the letter of the District Magistrate, Puri, to you, and submitted our petition with a prayer to permit us and our appointed persons to purchase rice and paddy within the Sub-division of Khurda on your behalf and his order, sent herewith, attached for your perusal and necessary action'.

On 30-9-1943 the first consignment of 98 bags of rice was delivered to Rajen Sahu by the plaintiff on behalf of the defendant-Vijaya Stores. On the 1st, 3rd, 4th, 5th, 7th and 8th, October other consignments were delivered to Rajen Sahu on behalf of the defendant. On 4-10-1943, plaintiff wrote Ext. 3 (a) to the defendant again complaining that no valid permit to purchase paddy had been obtained as contemplated in Clause 12 of the agreement. In the letter the plaintiff refers to the 'verbal assurance of the Subdivisional Magistrate, Khurda' and complains of his inability to fulfil the contract without proper authority.

On 11th October 1943, the defendant addressed Ext. 9(b) to the District Magistrate, Puri, attaching a Bill for Rs. 23,192/- and odd, and therein he requested for payment 'through our agents, Messrs. Babulal Aggarwala & Co. of Khurda'. The above correspondence shows that throughout this period the plaintiff was acting as the sub-agent of the defendant and that he had had a verbal assurance from the Subdivisional Officer, Khurda, that he could make purchases on behalf of the defendant as his sub-agent. Clause 4, Orissa Foodgrains (Control of Movements and Transactions.) Order, 1943, permits the purchase and sale of the commodities, by or to an authorised agent or sub-agent as may be approved by the Provincial Government. The point for determination is whether, in the circumstances and particularly to the light of the correspondence exhibited in the case, it can reasonably be inferred that the plaintiff' had been recognised as a sub-agent of the defendant.

9. It is clear that the authorities knew that the plaintiff had been appointed as sub-agent by the defendant. The draft form of the agreement which a purchasing agent was called upon to execute in favour of the Government, is given as Appendix I at page 21 of the Civil Supplies Manual. Clause 4 of the draft agreement deals with sub-agents and says:

'The agent may, at his own cost appoint sub-agents, subject to the approval of the Collector, but the said sub-agent shall not be entitled to claim any remuneration for their services from Government'.

There is nothing in the Orissa Foodgrains (Control of Movements and Transactions) Order, or in the instructions issued by Government, to show how the approval of Government was to be obtained: and in particular whether any written approval was required. The instructions issued by the Secretary to the Government of Orissa, Department of Supply and Transport, to all the Collectors, in his letter. No. 11363(6) S. T. dated 18-12-1943 show that Government were not directly concerned with payment of remuneration to sub-agents and that Collectors should insist on agents entering into appropriate written agreements with their sub-agents, one of the conditions of which should be that the latter will not trade on their own account in rice or paddy within the district. This letter, as stated above, was issued in December 1943, but I believe the practice till then was also not different.

It appears to me that the appointment of sub-agents was left entirely to the discretion of the Purchasing Agents and that the authorities did not, except in exceptional circumstances, interfere with their choice. The letter of the District Officer, Puri Ext. A (1)-2, dated 18-9-1943, shows that he had been apprised of the appointment of plaintiff as defendant's sub-agent. It also appears that the S. D. O., Khurda, had given the plaintiff an assurance to enable him to carry on his business as a sub-agent of the defendant. Mr. Mohanti, learned counsel for the respondent, pointed out that there was no written authority of the Collector specifically approving of the appointment of the plaintiff as sub-agent. But as I have already pointed out no written authority was required by law. In any event, the acquiescence by the District officer, without any express disapproval of the appointment of the plaintiff as sub-agent, and the verbal assurance given to him by the Sub-divisional Officer, Khurda, may be taken as sufficient evidence of the fact that the plaintiff had been recognised as the sub-agent of the defendant and that he was making purchases on behalf of the latter. It is plain that neither of the parties, nor the Officers of Government, had, taken any exception to purchases made by the plaintiff as they seem to have acted under the bona fide belief that no written authority was required under the law.

10. I have, therefore, arrived at the conclusion that the agreement Ext. 1 at its inception, was not contrary to law, nor did the supply of rice under it contravene any of the provisions of the Control Orders.

11. The question, therefore, is whether the plaintiff is entitled to any relief when subsequently the agreement became impossible of performance. Section 65, Contract Act, says:

'When an agreement is discovered to be void or when a contract becomes void, any person who has received an 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'.

The section makes a distinction between an'agreement' and a 'contract'. It also makesa distinction between 'discovered to be void' and'becomes void'. An agreement which is unlawfulwhen it is made may be discovered to be voidlater, and a contract may become void on thehappening of some event though at the time itis made it is perfectly legal.

An 'agreement' is defined in Section 2 as

'every promise and every set of promises forming the consideration for each other'.

When an agreement is enforceable by law it becomes a contract. The Privy Council have heldthat an agreement which is void 'ab initio' isincluded within the expression 'agreement discovered to be void'. See -- 'Haranath Kuar v.Indar Bahadur Singh', AIR 1922 PC 403 (F).In a later case, -- 'Manucha Mohan v. ManzoorAhmad Khan', AIR 1943 PC 29 (G), it was foundthat a registered mortgage was void because thenecessary permission of the Collector had not beenobtained under para. 11 of the Third Scheduleto the Code of Civil Procedure. Their Lordshipsheld that though the mortgage security could notbe enforced the mortgagee was entitled to recoverthe money advanced as a matter of restitution.

Sir George Rankin delivering the judgment ofthe Board observed:

'The bottom has fallen out of the contract andhe may avoid it. If he does so avoid the contract he brings himself within the terms of Section 65, within the principle of restitution ofwhich it is an expression -- whether for allpurposes adequate or exhaustive need not herebe considered'.

At page 33 of the report the following observation is made:

'Their Lordships have already expressed in this judgment their view that the transaction in question, in the present case, was an open and honest transaction, and think that its invalidity was at the time obscured by the difficulty in applying para. 11 of the Third Schedule correctly to the particular facts of the execution proceeding and to the terms of the orders as recorded'.

It would appear to follow, therefore, that if the transaction between the parties is honest and is not designed to circumvent or defeat any provision of law, the principle of restitution embodied in Section 65, Contract Act, can be applied to give relief to a party who has acted under the contract, before it became void. There is no evidence in this case to indicate when the contract became Impossible of performance by reason of the refusal of the authorities to grant a permit to the plaintiff, at any rate there was no such order till December 1943. It was due to the negligence of the defendant that no permit could be obtained for the plaintiff, even though the defendant explicitly undertook responsibility for obtaining one. Section 56, Contract Act, provides for such a contingency. When a contract becomes impossible of performance owing to the negligence of the promisor he is bound to compensate the promisee for any loss which such promisee sustains through the non-performance of the promise.

In cases of supply of goods the doctrine of 'quantum valet' should be applied and restitution ordered when the actual goods cannot be returned. The advantage under the contract was received by the defendant before it became void and in such cases the party receiving the advantage is bound to restore it -- See 'Wolf and Sons Ltd. v. Dadyba Khimji and Co.', AIR 1920 Bom 192 (H). See also -- 'Amnachala Nadar v. Srivilliputhur Municipal Council', AIR 1934 Mad 480 (I). As has been observed in -- 'Din Mohammed v. D.R. Sethi', AIR 1937 Lah 781 (J) the very foundation of the contract having been taken away and the contract having become impossible of performance, the defendant was bound to refund to the plaintiff the value of the goods received by him.

12. Learned counsel for the respondent strongly relied on -- 'In re An arbitration between Mahmoud and Ispahani', (1921) 2 K. B. 716 (K). That was a case under the Seeds, Oils and Fats Order, 1919, under the Defence of the Realm Regulations which expressly provided that

'a person shall not either on his own behalf or on behalf of any other person buy or sell or otherwise deal in any of the articles specified in the schedule hereto ...... except under and in accordance with the terms of a license issued by or under the authority of the Food Controller.'

It was held that as the defendant had no license the contract to sell was prohibited by the Order arid was, therefore illegal, and as the prohibition was in the public interest no claim could be made under the contract. It may be that under the Common law of England restitution is not permissible in such cases, but the Indian law is different in so far as it makes a provision in Section 65, Contract Act. This case can, however, be distinguished on the groand that the Seeds, Oils and Fats Order of 1919 did not provide for the appointment of a sub-agent who could act for the licensee. The broad principle of law approved in that case is that

'the Court will not tend its aid in order to enforce a contract entered into with a view of carrying into effect anything which is prohibited by law.'

But the principle enunciated in the MadrasFull Bench cases is one that has received approval even in England. In the very case cited byMr. Mohanty, Bankes, L. J. observed as follows:

'They cited a class of cases which saythat where a contract may be performed. either in a lawful way or in an unlawfulway, and if a party in the performanceof his part of the contract without theknowledge of the other party elects to perform it in an unlawful way, he cannot be heardto allege his own wrong. I quite accept thatproposition, and it is not in the least in conflictwith the one to which I have been referring,because in a case of the kind suggested thecontract is not 'ab initio' illegal.'

The learned Judge also approved of the statement in -- 'Bloxsome v. Williams', (1824) 3 B &C.; 232' at p. 235 (L) that

'if the contract be void as falling within thestatute then the plaintiff who is not a 'particeps criminis' may recover back his money because it was paid on a consideration which hasfailed.'

There, is nothing in the case relied on by Mr. Mohanty, which militates against the view I have taken of the nature of the contract and of the right of the plaintiff to be reimbursed for the goods supplied by him. The plaintiff alleged that he had made purchases from others in order to carry out the terms of the contract and had paid for the goods supplied to the defendant. Even if the contract between the plaintiff and the defendant becomes void the defendant would in the circumstances be liable to make good the loss suffered by the plaintiff in carrying out the terms of the contract.

Reference may also be made to a case, similar to the present, reported in -- 'Firm Harjiwanlal Balkison v. Firm Radha Kison', AIR 1938 P. C. 4 (M); see also -- 'Kishanlal v. Bhanwarlal', AIR 1954 S. C. 500 (N). In the latter case the plaintiffs were a firm of commission agents and entered into several forward contracts on behalf of the defendant. The forward contracts were void under the Defence of India Rules. Their Lordships of the Supreme Court held:

'The present suit is really not one to enforce any contract relating to purchase or sale of bullion which comes within the prohibition of this Notification. It is a suit by an agent claiming indemnity against the principal for the loss which the agent had suffered in carrying out the directions of the principal.'

13. In the light of the evidence in the case I am of opinion that the plaintiff was appointed a sub-agent to make purchases on behalf of the defendant, to the knowledge and with the approval of the authorities and that such appointment Was legal. Whether the plaintiff is regarded as a party to a contract which was not lawful at its inception but which became impossible of performance subsequently, or whether he is regarded as an agent of the defendant, employed to make purchases for the firm, he is clearly entitled to the value of goods supplied by him. I would, therefore, grant him a decree for the sum of Rs. 47,026/-, claimed in Items A and B of the plaint schedule, with proportionate costs throughout and future Interest from date of suit at six per cent per annum. We do not see any reason to disturb the finding of the learned Subordinate Judge in other respects. The appeal is allowed subject to this modification.

Narasimham, J.

14. I agree with the order proposed by my Lord. But in view of the importance of the legal questions involved I prefer to express my opinion in my own words.

15. The suit of the plaintiff was a simple one for realisation of the price of rice and paddy supplied by the plaintiff to the defendant between 30-9-1943 and 8-10-1943 in pursuance of an agreement entered into between the parties (Ext. 1) on 17-9-1943. At that time there were two Control Orders in force in Orissa for the purpose of regulating the distribution and transport of rice and paddy. The first one was the Foodgrains Control Order, 1942, passed by the Central Government (hereinafter referred to as the Central Order) and the second one was the Orissa Foodgrains (Control of Movements and Transactions) Order, 1943 (hereinafter referred to as the Orissa Order). The Central Order was of a general nature which prohibited any person from engaging in any undertaking involving the purchase, sale or storage for sale, in wholesale quantities of any foodgrain except under and in accordance with a license issued in that behalf by the Provincial Government or by an officer authorised, by the Provincial Government.

As early as 18-7-1942 the Government of Orissa in Notification No. 5472-D (C) had delegated to the District Magistrates and Sub-divisional Magistrates within their respective Jurisdictions the power to issue or cancel a license under that Order. The Central Order defines the expression 'storage for sale in wholesale quantities' as meaning storage in quantities exceeding twenty maunds. The Orissa Order was made on 15-9-1943 and its main purpose was to control the movements of and transactions in foodgrains.

Clause 4 of that order which is material for our purpose may be quoted as follows:

'4(i) No person shall purchase in wholesale quantities any foodgrain anywhere within the Province of Orissa except as an authorised agent of the Provincial Government or as a sub-agent of such agent approved by the Provincial Government or except under permit from the Director of Food Supplies.

(ii) No person shall sell in wholesale quantities any foodgrain anywhere within the Province of Orissa except to an authorised agent of the Provincial Government or to a sub-agent of such agent approved by the Provincial Government or to a person holding a permit from the Director of Food Supplies under Sub-clause (i) of this clause.

(iii) For the purposes of this clause any person who purchases or sells foodgrains in quantities exceeding ten standard maunds shall unless the contrary is proved, be deemed to purchase or sell the foodgrains in one transaction.'

It will be noticed that the two Control Orders were meant to serve two different purposes though there Is overlapping to some extent. The net result, however, is that if a person wants la purchase and store for the purpose of resale paddy in quantities exceeding twenty maunds he will be required to obtain a licence under the Central Order. He will also have to obtain a permit from the Director of Food Supplies or else he should become either an authorised agent of the Provincial Government or a sub-agent of that agent-approved by the Provincial Government. This power of approving sub-agents was subsequently delegated to the District. Magistrates within their respective jurisdictions. Hence compliance with both the Central Order and the Orissa Order will be required and failure to secure such compliance may result in criminal prosecution and punishment under Rule 81 (4), Defence of India Rules.

16. Though this is a First Appeal the findings of fact of the trial Court were not challenged before us by Mr. M.S. Rao, Counsel for the appellant or by Mr. Mohanty, Counsel for the respondent, and his entire argument was devoted to the pure question of law as to whether the contract was void and if so whether Section 65, Contract Act, would come to the plaintiff's aid. I may, therefore, summarise the facts found by the lower court. At all material times the defendant was working as a purchasing agent authorised by the competent authority. The plaintiff -entered into an agreement with the defendant on 17-9-1943 (Ext. 1) to supply about 40,000 maunds of rice by 8-10-1943, at a stipulated price. Both parties knew on the date of the agreement that the plaintiff had neither a licence under the Central Order nor a permit under the Orissa Order nor had he secured the approval of the Collector to function as a sub-agent of the defendant under the Orissa Order.

The plaintiff was an outsider belonging to some district of Bengal and consequently the defendant who is a local man of some influence undertook to secure for the plaintiff the necessary licence, and permit or approval. This was specially Inserted in Clause 12 of the agreement. Doubtless, the word 'permission' was used therein somewhat in- accurately. But the evidence of the defendant himself makes it clear that what the parties intended was a licence under the Central Order and permit or approval from the authorities concerned under the Orissa Order. On the same day (17-9-1943), the defendant in pursuance of the undertaking given in para. 12 of the agreement addressed a letter (Ext. 12) to the District Officer, Puri, mentioning the plaintiff as his sub-agent for the district of Puri and requested the District Officer to recognise the sub-agency. On the next day (18-9-1943) the District Magistrate in his letter No. 215 H. (Ext. A1-2) recognised the defendant as a purchasing agent for some thanas in Khurda Sub-division but did not give any reply either in the affirmative or in the negative to the defendant's prayer for recognition of the plaintiff as his sub-agent But from the evidence of the defendant (D. W. 3) the subsequent correspondence between the parties (Exts. 3 and 3-a) and the order of the District Magistrate (Ext. C1-2) it appears that the plaintiff applied to the Sub-divisional Officer of Khurda for a licence under the Central Order, enclosing therein the authorisation letter given to him by the defendant.

The Subdivisional officer gave some sort of verbal assurance to the plaintiff and forwarded all the papers to the Collector. The actual order of the Collector on the application of the plaintiff for a licence under the Central Order or of the defendant for recognition of the plaintiff as his sub-agent under the Orissa Order is not on record. But from his orders dated 23-10-1943 (Ext. A-2), 25-10-1943 (Ext. C-2) and 15-12-1943 (Ext. C1-2) it may be safely interred that both of them were rejected sometime before 23-10-1943. In fact, in Ext. C1-2 the District Magistrate said that as the plaintiff was an outsider possessing no licence under the Central Order the District Magistrate 'had therefore no intention of approving him as a sub-agent'.

While the applications for licence and for approval of the sub-agency were thus pending before the district authority the plaintiff supplied 3,346 maunds of rice and 26 maunds of paddy to the defendant between 30-9-1943 and 8-10-1943 in pursuance of the agreement. The price payable by the defendant to the plaintiff in accordance with the agreement (Ext. 1) for the rice and paddy supplied was Rs. 47,026/-.

17. The trial Court, however, dismissed the plaintiff's claim for the price of the goods supplied on the ground that the agreement was void 'ab initio' inasmuch as, on the date of the agreement the parties knew that the plaintiff did not possess either a licence under the Central Order or a permit or approval under the Orissa Order and that they knew that by entering into such an agreement they were contravening the provisions of the Control Orders, thereby committing an offence. He thought that Section 65, Contract Act, would not come to the help of the appellant-plaintiff because that section had no application where the contract was void 'ab initio' under Section 23, Contract Act, and both parties were in 'pari delicto'. Mr. Rao's main contention is that in any view of the case the plaintiff was entitled to the price of the goods supplied to the defendant by virtue of Section 65, Contract Act.

18. Hence the principal question for decision is whether the contract is void 'ab initio' or it became void sometime after the execution of the agreement (Ext. 1). The trial Court thought that the object of the agreement was forbidden by law and that the contract was therefore void 'ab initio'. This view, however, appears to be erroneous on the findings of fact of the trial Court itself. The contracting parties knew very well that they should obtain the necessary licence and permit under the two Control Orders. The defendant took upon himself the duty of obtaining them from the authorities concerned. This was pot a mere pious intention of the parties but both of them took active steps for the purpose of obtaining the necessary licence and permit. On the very day of the agreement the defendant addressed a letter to the Collector, Puri Ext. 12. to approve the plaintiff as his sub-agent. He also gave a letter of authority on the basis of which the plaintiff applied for licence to the Subdivisional Officer, Knurda, and also obtained his verbal assurance. Eventually, however, the Collector refused to grant either the licence or the permit.

Thus the object of the agreement (Ext. 1) was not to purchase or store for sale foodgrains in contravention of the provisions of the two Control Orders but to do so in Conformity with those provisions. Clause 4 of the Orissa Order does not prohibit the entering into of an agreement by an agent to appoint a sub-agent for the purpose of purchasing foodgrains in wholesale quantities. The prohibition is at the time of purchase and not at the time of entering into an agreement for purchase. Similarly, Clause 3 of the Central Order does not go to the extent of prohibiting the entering into of an agreement for the purpose of purchase, sale or storage for sale in wholesale' quantities of any foodgrain at a future date after obtaining the necessary licence and permit from the authorities concerned.

Hence I am of the view that the object of the agreement was to strictly conform to the requirements of the two Control Orders and that the parties made sincere efforts to secure such compliance. The object was not to do anything forbidden by law or to defeat the provisions of any law and consequently the contract cannot be said to be void 'ab initio'. Doubtless, subsequently when the Collector refused to give the licence or the permit the contract became void as after the date of such refusal it is hit by Section 56 (second para.), Contract Act.

19. There are a series of decisions of the Madras High Court where on facts analogous to the present case that High Court has taken a similar view. Thus in AIR 1928 Mad 1197 (C). it was held that though a partnership entered into in contravention of a licence or of any rule under the Abkari Act is void yet it is not illegal for persons to enter into a partnership for the purpose of carrying on a toddy shop business for which they hope at a future date to obtain a licence. The learned Judge further observed-

'There is indeed nothing in the Act to prevent a license to conduct a toddy shop being issued to several persons to enter into a partnership for the purposes of bidding at a toddy shop auction and if successful in the auction, of obtaining a license and of carrying on a toddy shop business.'

This view was quoted with approval in a Full Bench decision reported in AIR 1935 Mad 440 (D), though their Lordships held that on the facts of the case before them that rule would not apply. I may also refer to a later Division Bench decision of the Madras High Court reported in --'J.D. Italia v.' D. Cowasjee', AIR 1944 Mad 295 (O), where the facts were very similar to the present case. There, two parties entered into a partnership on or before 23-8-1937 for carrying on retail business of toddy shops in the city of Madras. The license stood in the name of one of the partners. But the authorities had been informed of the existence of the partnership on 2nd September and again on 11th September one ofthe partners applied to the Collector of Madrasto issue the licence in the joint names of thepartners. The licensing authority (Collector ofMadras) delayed for several months in passingorders on this application and eventually rejectedthe same on 10-3-1938. In the meantime thepartners carried on the business. There was further correspondence with the Collector and on18th May he finally intimated that the licencewould not be issued in the names of all thepartners.

In repelling the argument that the contract was void 'ab initio' Leach C. J. observed:

'There can be no doubt that on the decisions of this Court, the partnership between the plaintiff and the defendant would have to be declared unlawful ab initio if a full disclosure of the position had not been made to the revenue authorities but that is not the case. The partnership was entered into before the plaintiff submitted his first tender. The revenue authorities had full knowledge of the situation from the very beginning and until 18-5-1938 had indicated no objection to the business being carried on in partnership although they had on 10-3-1938 said that the licences could not be issued in the joint names. They were, however, prepared to reconsider that decision, as the Collector's letter of 11-4-1938 shows. In these circumstances it cannot, in our judgment, be said that the partnership before 18-5-1938 was an unlawful one.'

This decision was cited with approval in --'Venkata Subbayya v. Attar Sheik Mastan', AIR 1949 Mad 252 (P), and also in a later Pull Bench decision reported in -- 'AIR 1950 Mad 444 (E)'. It is difficult to distinguish the present case from the aforesaid Madras case. The authorities had been very promptly informed of the agreement between the parties. In the reply of the Collector of Puri dated 18-9-1943 (Ext. A1-2) he did not categorically reject the prayer of the defendant for the approval of the plaintiff as his sub-agent. His letter is discreetly silent on this question. The exact text of the Subdivisional Officer's order on the application of the plaintiff for a license under the Central Order is not on record but in the two letters of the plaintiff to the defendant (Exts. 3 and 3-a) dated 22-9-1943 and 4-10-1943 there is a reference to the fact that the Subdivisional Officer sent some orders and also gave verbal assurances to the plaintiff.

The first official intimation from the Collector of his refusal to give the necessary permission or license is contained in his letter Ext. A-2 dated 23-10-1943 calling upon the defendant to show cause why action may not be taken against him for permitting the plaintiff to carry on the business without a valid license. By that date the goods in question had already been supplied by the plaintiff to the defendant. Thus, it appears that a full disclosure had been made before the authorities concerned, namely, the Subdivisional Officer, Khurda, and the Collector, Puri, and they did not object to the parties acting under the terms of their agreement till a later stage.

From the date of the Collector's refusal it would obviously be unlawful for the plaintiff to supply rice to the defendant in pursuance of the agreement inasmuch as such act of supply would amount-to contravention of the two Control Orders.' The second para, of Section 56, Contract Act, says (omitting immaterial portions):

'........A contract to do an act which, after the contract is made, becomes.......by reason of some event winch the promisor could not prevent, unlawful, becomes void when the act becomes......unlawful.'

The promisor, namely, the plaintiff could not prevent the refusal of the license and the permit by the Collector. From the date of such refusal the contract, therefore, became void by virtue of the aforesaid section. Though the exact date of refusal is not known it must have taken place on some date between 8th October and 23rd October 1943.

20. The Patna decision (AIR 1943 Pat 374 (A)) on which the learned lower 'Court relied is distinguishable. There the agreement by an Excise licensee to transfer his license to another person without securing the permission of the Collector, was held to be void 'ab initio'; but there was no finding to the effect that while entering into the agreement the parties stipulated that permission would be sought for in due course or else that they applied for such permission and that the Collector by his conduct led them to believe that permission would be given in due course. Similarly, in the other cases under the Excise Acts or Opium. Act or Bombay Salt Act cited before us: -- 'Thithi Pakurudasu v. Bheemudu', 26 Mad 430 (Q), -- 'Debi Prasad v. Rup Ram', 10 All 577 (R), -- 'Raghunath Lalman v. Nathu Hirji', 19 Bom 626 (S), -- 'Ismailji Yusufali v. Raghunath', 33 Bom 636 (T)' and -- 'Behari Lall Shaha v. Jagodish Chunder', 31 Cal 798 (U), the aforesaid finding of fact was clearly absent.

21. I am, therefore, of the view that the contract became void some days after the date of thecontract and that consequently Section 65, ContractAct, would, in terms, apply and the defendant whohas received an advantage under it is bound tocompensate the plaintiff. In this view it is unnecessary to consider whether even if the contractbe held to be void 'ab initio', Section 65, Contract Act,would come to the relief of the plaintiff either onthe basis of the principle laid down by the PrivyCouncil in AIR 1922 PC 403 (F) or on the generalprinciple of English law of contract based on theparties not being in 'pari delicto'. These questionsbecome academic on the admitted facts of thecase.


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