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Lachhman Das and ors. Vs. Hakim Ram Krishan and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtDelhi High Court
Decided On
Case NumberLetter Patent Appeal No. 45 of 1971
Judge
Reported inAIR1975Delhi159; ILR1975Delhi48
ActsContract Act, 1872 - Sections 23
AppellantLachhman Das and ors.
RespondentHakim Ram Krishan and ors.
Advocates: J.S. Arora,; D.D. Chawla and; C.L. Choudhry, Advs
Cases ReferredRam Lal Misra v. Rajendra Nath Sanyal
Excerpt:
.....held 'we are of opinion that an agreement between two persons not to bid against each other at an auction sale is perfectly lawful and cannot be considered to be opposed to public policy. (11) any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy (halsbury's laws of england, 3rd edn. it may, thereforee, be necessary to examine as to what is the public good involved in the government auctions. agreements which are likely to prevent the property put up from realizing its fair value and to damp the sale, would certainly be against the public good, but an agreement between two or more persons not to bid against each other at an auction is not illegal or against public good. it is clearly to the interest of the public as..........at the auctions. it is in the public interest that the state should get a fair price at the public auctions of the public properties, and out be a victim of fraud or conspiracy to keep the price low causing loss to the public exchequer. being aware of the duty cast upon us, we have examined the facts of the case leading to the entering of the agreement ex. p-1, and we have found that there was no attempt to defraud the public revenue and that the property was sold to the sitting allottees and shri sohan singh at the market value. the agreement ex. p-1, thus cannot be held to be opposed to the public policy. no material was brought to our notice at the hearing that the price is not the market price or that any fraud was ractised to keep the price down. (12) the result is that there.....
Judgment:

S.S. Chadha, J.

(1) This Letters Patent Appeal on certificate, has arisen from the judgment dated November 6, 1970, of a learned single Judge of this Court in a Regular Second Appeal.

(2) We can do no better than to state the facts which arc not disputed, as brought out in the judgment of the learned single Judge. The facts are that the plaintiffs filed a suit for specific performance of an alleged contract of sale of shop No. 2562 Gali No- 6, Beadonpura, Ajmal Khan Road, Karol Bagh, New Delhi. It was alleged that the plaintiffs are in possession of shop No. 2562 which is a part of the property known as No. 2562-73 (New No. Xvi 2593-2606). This whole property was accomposite property and was auctioned by the 1954, Tea. nercent of the sale price was deposited Toy the plaintiffs and the defendants who were the bidders. However, the sale was not contrimed and the property was open to public and the maximum bid of Rs. 60,250.00 was given. The auction was then to be continued only amongst the sitting allottees and for this purpose auction was postponed to the next day. This is clear from the proceedings before the Competent Officer. Exhibit P-2 on the file. Before that the defendants-respondents entered into an agreement E.. P-l in which it was provided that the plaintiffs who were in occupation of shop No. 2562 were not interested in the auction of the aforesaid full property by the Competent Officer, Delhi, and that they will not purchase the property if sold by the Competent Officer to the defendants together with Shri Sohan Singh. It was also agreed that after the sale as and when completed by the Competent Officer in favor of the defendants Along with Shri Sohan Singh, they would transfer to the plaintiffs without payment of any consideration shop No. 2562 and that the defendants shall get the sale deed registered in the name of the plaintiffs. It was also agreed that the plaintiffs will withdraw from the auction of the property and as such will not bid. Later on auction was sanctioned in favor of the defendants and Shri Sohan Singh for Rs. 60,250.00 The sale certificate was issued in their favor on 5-8-1955. The defendants having refused to carry out their promise of transferring the shop in the name of the plaintiffs, the letter filed a suit for specific performance of the agreement Exhibit P-l. and prayed for a decree to execute the sale deed in their favor. The defendants controverter the allegations. Various pleas were raised and on the pleadings of the parties the following issues were framed :-- '(1) Is the suit within time 0. P. P. (2) Whether the plaint has been properly valued for purposes of court-fee and jurisdiction 0. P. P. (3) Whether the defendants agreed to convey the shop in suit to the plaintiffs without consideration. If so, is the said agreement for consideration and is valid and cnforceable in law 0. P. P. (4) Whether the agreement of issue No. 3 was not entered into by proper parties and was it entered into by the defendants under coercion and threat, and if so, what is its effect? 0. P. D. (5) Whether the plaintiffs are in lawful possession of the shop in suit? If not, how can they maintain the suit 0. P. D. (6) Is the suit had for non-joinder of the parties? (7) Relief.'

(3) The trial court held under issue No. 1 that the suit was within lime. On issue No. 2, the trial court found that the suit was valued properly for the purpose of court-fee though for the purpose of jurisdiction the court held that the suit for jurisdictional value would be Rs. 3,250.00 . On issues 3 and 4 it was found that the agreement was for consideration and it was legal and binding on the parties. Issue No. 5 was held in favor of the plaintiffs. On issue No. 6 it was held that as Shri Sohan Singh was not party to the agreement Ex. P-1. he cannot be made a party to the suit though the decree could be passed in respect of the parties actually before the court. Consequently, the trial court decreed the plaintiffs' suit and ordered the defendants to exeeute a conveyance deed in favor of the plaintiffs in respect of shop No. 2562. He, however, made it clear that the decree would have no effect on Shri Sohan Singh's right in the suit property.

(4) An appeal was taken against the judgment by the defendants. The lower appellate court has affirmed the findings of the trial court that the agreement was for a consideration. The object of the defendants that as they had only 5/6th shares of the shop and that l/6th share could not be transferred as it vested with Shri Sohan Singh, the suit should not have been decreed was not accepted by the lower appellate court which found that they were under compulsion to transfer their rights in the property. The learned lower appellate court, however, upheld another objection raised by the defendants that the agreement Exhibit P-l was void as it was opposed to public policy. Consequently on his finding that the agreement was opposed to public policy the appeal of the defendants was allowed and the suit of the plaintiffs was dismissed.

(5) Regular Second Appeal No. 143-D of 1961 against the Judgment and decree of lower appellate court was allowed by the learned single Judge in view of his finding that it cannot be held that the agreement Ex. P-1 is opposed to public policy. The judgment and decree of the lower appellate court were set aside and those of the trial court restored, with the result that the suit of the plaintiffs for specific performance of the contract was decreed to the extent of 5/6 share in the property bearing No. 2562 Gali No. 6 Beadonpura, Ajmal Khan Road, New Delhi.

(6) In this appeal, the only question that was argued by Shri J.S.Arora, appearing for the appellant is issue No. 3 reading as follows :-

'WHETHERthe defendants agreed to convey the shop in suit to the plaintiffs without consideration. If so, is the said agreement for consideration and is valid and enforceable in law ?'.

THEfindings of the courts below on the first part of this issue about the agreement Ex. P-1 being for consideration, namely; consideration not to bid at the auction before the Competent Officer amongst the sitting allottees, was not questioned before us. The main argument that was addressed by the counsel for the appellant was that the agreement is unenforceable as against Public Policy. According to him the concept of Public Policy is a varying concept changing with the conditions prevailing in this country at any particular time. The counsel argued that in this country the Government is now entering into commercial activities on a large scale and as the Government preferred sitting allottees, it was necessary that there should be adequate protection against the mischief of 'knock-out' agreements causing injury to the Government by under-hand dealings. He further contends that on a true construction of the agreement Ex. P-l between the parties. Hakim Ram Kishan representing himself and his son Dr. Durga Dass had expressed himself as not interested in the auction of the aforesaid property by the Competent Officer and will not purchase the said property, if sold by the Competent Officer to the sitting allottees together with Shri Sohan Singh and that as and when the sale of the aforesaid property by the Competent Officer is completed, then without payment of any consideration the sitting allottees together with Shri Sohan Singh shall arrange to transfer the ownership of shop No. 2562 in favor of Hakim Ram Kishan and his son Dr. Durga Dass. According to the counsel, the very fact that under the agreement in question. Hakim Ram Kishan and Dr. Durga Dass were not to bid, was sufficient proof that had they made the bids before the Competent Officer in competition with the other sitting allottees, the Government would have secured higher price at the auction. This agreement according to the learned counsel was with the object to defraud the Government of the maximum bid that the property could have fetched in the auction inter-se the sitting allottes. These arguments, however, need closer scrutiny on the facts brought out on the record of the case.

(7) The sequence of events from the record show that the properly in dispute was put to auction in 1954 and the highest bid at that time was Rs. 40,000.00 . This bid apparently was not accepted by the authorities and the property was put to auction again. The copy of the bid sheet in respect of the property in dispute Ex. P-2 shows that the bid started on January 9, 1955 at Rs. 10,000.00 and continued till the bid of Behari Lal at Rs. 59,000.00 . The auctioneer recorded the fact in the bid sheet that the bid be resumed again at I P.M. At 1 A.M. bid again started with the first over bid of Dyal Chand at Rs. 59,500.00 Behari Lal gave the second bid at Rs. 60,000.00 . The third maximum bid was then given by Dyal Chand at Rs. 60,250.00 It is significant to note that Dayal Chand had been participating in the bid from the very beginning. At that stage, the sitting allottees namely ; (a) Mali Chand and others, (b) Lachman Das, (c) Ram Asra Mal, (d) Hakim Ram Kishan, (e) Lal Singh and (f) Amrit Singh gave the fourth joint bid of Rs. 60,250.00 , claiming a preferential right to purchase the property at the maximum bid received at the open auction. The bid sheet records a note to the effect 'auction to be continued among sitting allottees only on 10-1-1955 at 2 P.M. in court'. The Competent Officer thus restricted the auction amongst sitting allottees only on 10-1-1955. The Competent Officer with a view to benefit the sitting allottees of the composite property though it fit after ascertaining the market value of the property at Rs. 60,250.00 to restrict he auction amongst the sitting allottees. The bids given on 9-1-55 were in open auction and the highest bid that was offered for this property was Rs. 60,250.00 . The Competent Officer could refuse to accept this highest bid but did not choose to do so as it has to be presumed that he thought it to be a fair market value of the property. The Competent Officer would have also taken note of the reserve price of this property which is valued by the authorities themselves and the value of Rs. 60,250.00 must be over the reserve price. 'There is no material on the record to show that the price of Rs. 60,250.00 is not the market price or that there was any conspiracy amongst the sitting allottees to deprive the Government of fair market value of the property or to defraud the Government of the same. The agreement Ex. P-1 only says that Hakim Ram Kishan and his son Dr. Durga Dass will not purchase the said property in dispute. It further recites that they are not interested in the auction of the property in dispute by the Competent Officer. The proceedings before the Competent Officer on January 10, 1955 start with the order of the Competent Officer reciting the fact that 'Yesterday at the time of sale the occupants exercised their right of pre-emption, but it was then not decided as to whether they will bid against each other or will have a joint sale and they were directed to appear in Court to-day to make a definite statement and to bid against each other if the bid was not a joint one.' The proceedings further show that Hakim Ram Kishan made a statement that he does not want to join in the sale either in competition with the other occupants or in collaboration with them, and that his interest in the sale is nil. The other sitting allottees thereafter made a statement that their bid is a joint one and if accepted, their share would be as specified in that statement. It may be significant to note that Shri Sohan Singh also made the statement that his share would be 1/6. If Hakim Ram Kishan had joined the other allottees, the sale would have been only at Rs. 60.250.00 . The fact that he made a statement to the effect that he docs not want to join in the sale, would not increase the market value of the property. It must not be forgotten that the object of the sale of the composite property to sitting allottees in preference to out siders was to grant a rehabilitation benefit to the displaced persons. Once having ascertained the market value in open auction the Competent Officer was within his powers to sell the property jointly to the sitting allottees, who had agreed that their bid may be considered as a joint one. The maximum bid for the property was for Rs. 60.2501-. The Competent Officer on that date adjourned the proceedings to February 25, 1955 for confirmation, and confirmed the sale later on. In view of this material brought on the record the learned single Judge was perfectly justified to return the finding that there is no evidence on record to show that the total property was valued for more than Rs. 60,250.00 , that the record is thus bereft of any suggestion of conspiracy to cheat and to defraud the Government by getting property at less price than it would have brought if there was no agreement.

(8) The counsel for the appellant made reference once again to a number of authorities cited before the learned single Judge. In Parduman Chand v. Bawa Kashmira Singh and another, A.I.R. 1943 Lah 100, relied upon by counsel, the parties were intending bidders at an auction; they formed a ring and the amounts sued for represent the share of the profits resulting from the 'knock-out'. Monore J, after examining 37 P. R. 1901, (1921) 1 K. B. 635 and (1927) 1 K. B. 169 expressed the opinion, that there is a clear distinction between the agreements not to bid or to share the property bid for after purchase on the one hand and an agreement to have the real auction afterwards amongst the members of a ring on the other. Relying on the dissenting note of Scrutton L. J. in (1921) 1 K. B. 635 that the agreement for a 'knock-out' is un-enforceable, his Lordship held that it is a mode of cheating and that the object of these suits is to enforce an agreement contrary to public policy. Even in this case it was not held that the agreements not to bid or to share property bid after purchase are unenforceable as against public policy. The judgment proceeded on the peculiar facts as the enforcement of the share of profits resulting from the 'knock-out' was sought.

(9) The next case relied upon by the counsel for the appellant is Hutchegowda v. H. M. Basaviash, A. I. R. 1954 Mys 29. In this case the parties came to an agreement not to raise the bids in revenue sales but to divide the property purchased between themselves, so as to prevent the land from being sold for its real value. The object of the agreement was held to be fraudulent and un-lawful and was thus held as un-enforceable. Mallappa J relied only on the head note (c) in the matter of Ram Lal Misra v. Rajendra Nath Sanyal and rendered no independent discussion. Probably the reason why there was no discussion is that the suit was held to be barred by time under the first part of Article 113 of the Limitation Act, since there is no helpful discussion in the Mysore case, reference was made by the counsel to Ram Lal Misra v. Rajendra Nath Sanyal, . In this case the plaintiff came to the court with the allegation that the defendant approached the plaintiff and asked him not to raise bids against him and that as a consideration for this he offered to pay off the prior mortgage and also to make good the whole amount due to the plaintiff under his decree. The finding recorded in this case was that the object of the secret arrangement arrived at between the parties clearly was to deprive the rival decree-holder of his legitimate share in the amount which was to be paid by the defendant to the plaintiff over and above the amount which he was to get as his share in the rateable distribution made by the court, or in other words to benefit the plaintiff at the expense of the rival decree-holder. It was also held that the case, thereforee, is not merely of an honest combination between two bidders to purchase the property at an advantageous price but go as futher by resorting to secret artifice turn the purpose of defrauding a third person, namely, the rival decreeholder and it is in these circumstances that their Lordships held that the object of the agreement in that case was fraudulent and it is, thereforee, void under section 23 of the Contract Act. On the question of law the Bench quoted with approval a passage from Halsbury's Laws of England, Volume 1 page 512 :

'ANagreement between the two or more persons not to bid against each other at an auction, even if amounting to what is popularly known as a 'knock-out' would not seem to be illegal or to invalidate the sale.'

THEIRLordships further noticed a number of decisions and held ''We are of opinion that an agreement between two persons not to bid against each other at an auction sale is perfectly lawful and cannot be considered to be opposed to public policy.' The agreement in the case before us, thus cannot be regarded as opposed to public policy'. There is no secret artifice between the parties in defrauding the Government of the market value of the property.

(10) Reliance was next placed on a reported judgment in re : Chattamal Jethmal and others v. Rewachand and others, A.I.R. 1914 Sin 165. In this case the finding was recorded that before the partners went inside the building, where the Executive Engineer held the auction, they agreed not merely not to bid against each other, but that there should be a show of bidding up to. a certain limit, in order to cause the Executive Engineer to believe that there was no combination between them and that there was keen competition amongst the bidders. It was further found as a matter of fact that the right to collect lac was worth Rs. 21.200.00 and that there was a loss to the public purse of Rs. 8,200.00 which loss was due to this arrangement among the partners. On these findings it was held that there was a show of bidding in order to make the Executive Engineer believe that there was no combination but rather a keen competition among the bidders and held that the conduct of these partners was dishonest. This artifice employed by the partners was held to be illegal, un-lawful and not a case of combination. This authority is peculiar on the facts found in the case. In this case it was also observed that it must be remembered that no decision is an authority except upon the facts of the case in which it is given.

(11) Any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy (Halsbury's Laws of England, 3rd Edn. Volume 8 at page 130). Under section 10 of the Indian Contract Act. (hereinafter called the Act) all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. and are not expressly declared to be void under any provision of the Act. Thus an agreement is a contract if it is made for a lawful consideration and with a lawful object. We have already held that the agreement is for a lawful consideration. Section 23 of the Act declares what considerations and objects are lawful and what not. Inter alia, it provides that the object of an agreement is lawful unless the Court regards it as opposed to Public Policy. It often happens that an agreement which in itself is not un-lawful is made with the intention of one or more of the parties to make use of the subject matter for an un-lawful pupose, that is to say, a purpose contrary to public policy. The Courts will uphold the sanctity of contracts which from the basis of the Society, but where the purpose is contrary to Public Policy, the Courts may relieve them of their duty. In the later class or the cases, the Courts will not lend their help to such a plaintiff-the maxim is Ex turpi causa non oritur actio. It may, thereforee, be necessary to examine as to what is the public good involved in the Government auctions. Agreements which are likely to prevent the property put up from Realizing its fair value and to damp the sale, would certainly be against the public good, but an agreement between two or more persons not to bid against each other at an auction is not illegal or against public good. It is clearly to the interest of the public as well as the State where the auctions are held by it that a fair market price should be realised at the auctions. It is in the public interest that the State should get a fair price at the public auctions of the public properties, and out be a victim of fraud or conspiracy to keep the price low causing loss to the public exchequer. Being aware of the duty cast upon us, we have examined the facts of the case leading to the entering of the agreement Ex. P-1, and we have found that there was no attempt to defraud the public revenue and that the property was sold to the sitting allottees and Shri Sohan Singh at the market value. The agreement Ex. P-1, thus cannot be held to be opposed to the Public Policy. No material was brought to our notice at the hearing that the price is not the market price or that any fraud was ractised to keep the price down.

(12) The result is that there is no merit in the appeal and it is dismissed with costs.


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