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Universal Plast Limited Vs. Santosh Kumar Gupta - Court Judgment

LegalCrystal Citation
SubjectContract
CourtDelhi High Court
Decided On
Case NumberSuit No. 487 of 1976
Judge
Reported inAIR1985Delhi383; 1986(1)ARBLR282(Delhi)
ActsIndian Contract Act, 1872 - Sections 23; Code of Civil Procedure (CPC), 1908 - Order VIII
AppellantUniversal Plast Limited
RespondentSantosh Kumar Gupta
Advocates: A.B. Saharia,; T.K. Ganju,; A.K. Dutt,;
Cases ReferredFirm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty and Sons
Excerpt:
.....and as he had already taken delivery of the spindles, the suit of the plaintiff should be decreed. it is well established that the object of an agreement cannot be said to be forbidden or unlawful merely because the agreement results in what is known as a 'void contract'.void agreement, when coupled with other facts, may become part of a transaction which creates legal rights, but this is not so if the object is prohibited or 'mala in se. the plaintiff must, thereforee, fail......be said to be forbidden or unlawful merely because the agreement results in what is known as a 'void contract'. void agreement, when coupled with other facts, may become part of a transaction which creates legal rights, but this is not so if the object is prohibited or 'mala in se.' thereforee, the real question before us is : is the agreement between the parties in each case, which was to be carried out in bombay, so connected with the execution of an object prohibited by either a law applicable in bombay or a law more widely applicable so as to be hit by section 23 of the contract act ?' after discussion the supreme court gave answer to the question posted in para 19 of the judgment as under:- 'the result is that we think that the objects of contracts set up the plaintiff cannot be.....
Judgment:

D.P. Wadhwa, J.

(1) The plaintiff is a public limited company. Earlier its name was Chowdhry Plast Ltd. The plaintiff owned 4,200 spindles with motors and accessories which were installed at 236, Industrial Area, Ludhiana.'By a resolution of the) plaintiff it was decided to sell these spindles at a price of Rs. 1,02,440.18. The defendant agreed to buy the same at this price. This was by letter dated 5th July, 1973 of the plaintiff to the defendant, which was agreed to by the defendant. This letter is Ex. P-4. Under this the defendant agreed to pay a sum of Rs. 10,0001- towards part payment and the balance amount of Rs, 92,440.18 he agreed to pay to the plaintiff by 30th September, 1973. This letter also recorded the fact that the possession of the spindles had already been delivered to the defendant. Then this letter also contained the following conditions :

'WE shall reader you all assistance as may be required by you for obtaining permission of all Government Authorities by way of signing all paper/documents applications appeals or such other papers as may be required in connection therewith. However, obtaining all the permissions will be entirely your responsibility.'

By his letter of the same date (Ex. P-2) the defendant sent a cheque for Rs. 10,000.00 to the plaintiff towards part payment of the price of the aforesaid 4,200 worsted spindles and other accessories. The description of the spindles and accessories is given in the bill dated 5th July, 1973, which was raised by the plaintiff and was in the name of M/s. Gupta Hosiery Mills, proprietor Mr. S. K. Gupta, the defendant herein. The defendant did not make payment of the balance amount and the plaintiff, thereforee, instituted the present suit for recovery of Rs. 1,29,8391- which includes the amount of Rs. 92,440.18, being the balance of the agreed purchase price and interest at the rate of 15 per cent per annum from 1st October, 1973. The defendant in his written statement denied that there was any delivery of the spindles to him. He stated that, in fact, the spindles could not have been transferred to him and deli- very made to him without the permission in writing of the Textile Commissioner, Bombay and the Import Trade Control Authority, the spindles being imported worsted spindles. Rather, the defendant laid his claim for recovery of Rs. 10,000.00 which had been paid by him by way of advance.

(2) On the pleadings of the parties the following issues were framed :-

1. Whether the defendants agreed to purchase 4,200 old spindles with motors and accessories from the plaintiff for the sum of Rs. 1,02,440.18 p. (rupees one lac two thousand four hundred forty and eighteen paise only)? OPP.

2.Whether the goods in question were delivered by the plaintiffs to the defendant OPP.

3.Whether the sum of Rs. 10,000.00 (rupees ten thousand only) was paid by the defendant towards the price of these goods in question by a cheque bearing No. 093837, dated 5-7-73 drawn on Punjab National Bank, Parliament Street, New Delhi, towards part payment of the goods purchased OPP.

4.Whether the plaintiff is entitled to the recovery of Rs. 92,440.18 (rupees ninety thousand four hundred forty and eighteen paise only), as balance price of the goods sold? OPP.

5.Whether the plaintiff is entitled to any interest if so, at what rate and on what amount OPP.

6.Whether this court has no territorial jurisdiction to try the suit OPD.

7.Whether the defendants are entitled to the recovery of Rs. 10,000.00 (rupees ten thousand only), with interest OPD.

8.Relief.

(3) There is a background as to how the spindles were agreed sold and delivery given to the defendant. The defendant his wife were having controlling shares of Chowdhry Plast These saris were sold to one Mr. A. K. Khaitan under agreement dated 27th December, 1972. Mr. A. K. Khaitan was for some time time a Director of Chowdhry Plast Ltd. This agreement has been marked 'X'. But, in view of the evidence on 3 record and also of the fact that this agreement has not been disputed, I will treat it as having been exhibited. Clause-6 of this agreement (EX.-X) would be relevant .-

'6. The Company is the owner of about 4,200 old spindles valued at Rs. 1,02,000.00 . The party hereto of the Second Part may at his option be exercised within six months from the date hereof call upon the parties hereto of the First part to take over the said old spindles for the said sum of Rs. 1,02,000.00 and within one week of the exercise of option the parties hereto of the First Part shall pay for and take delivery of the said old spindles from the company and in that event the parties hereto of the first part will be entitled to all rights entitlements benefits and quotas attached and/or relating to the said old spindles.'

On 9th January, 1973, (Ex. D-l) the plaintiff wrote to the defendant that the plaintiff was not interested in 4,200 old spindles and as agreed between the parties , defendant was requested to take over the said spindles at the book value and make payment to the plaintiff within one week from the date of the letter. Then there is a resolution of the plaintiff which shows that these spindles with motors and accessories were installed at 236, Industrial Area (A), Ludhiana and were being looked after by the defendant and his wife Mrs. Urmil Gapta and as the new management-of the plaintiff did not take the possession of these spindles with motors and accessories, these continued to remain in possession of the defendant and his wife. This premises being No. 236, Industrial Area (A), Ludhiana, admittedly belonged to the defendant and his wife. Thus. this is how letter Ex. P-4 of the plaintiff mentioned the fact that the possession of these spindles (worsted plant) had already been already to the defendant.

(4) If the case rested at that it was quite simile and T would have bound the defendant to the letter Ex. P-4 and his reply Ex. P-2. But, then, an objection to the legality of the agreement regarding sale of these spindles has been raised by Mr. B. Dutta, learned counsel for the defendant, which, to my mind, is fatal to the suit. However, before I proceed further I will refer to an application of the defendant being I.A. 980185 filed under Order 6 Rule 17 of the Code of Civil Procedure. By this application the defendant seeks to amend the written statement by incorporating the plea that the suit has not been filed by a duly authorised and competent person and that the plaint has not been signed and verified by a duly authorised person. The suit is of the year 1976 and this application was filed when the case was listed for final arguments after the conclusion of the evidence of the parties. It is contended that the plaintiff did not bring on record any resolution showing the authority of Mr. C.L. Rathi, Secretary of the plaintiff, to file the present suit and sign and verify the pleadings on behalf of the plaintiff Mr. C. L. Rathi had deposed that he was the Secretary of the plaintiff and was its constituted attorney and that the plaint had been signed and verified by him. There was no issue raised as to whether the suit was properly instituted. I would not allow the defendant to re-open the case at this stage and I would rather accept the statement of Mr. C. L. Rathi to hold that the suit has been properly instituted. There is no reason why this application should have been filed at this late stage. I find from the record that on 7th August, 1984, another application of the defendant seeking amendment of the written statement, though on an other ground, was rejected. I reject this application as well.

(5) Woollen Textiles (Production and Distribution) Control Order, 1962 (for short The Control Order') was issued under the Essential Commodities Act, 1955. Clause 3 (1) of this Control Order is relevant :-

'3. Prohibition of acquisition, installation, sale, etc.- (1) No person shall, except with the prior permission in writing of the Textile Commissioner, acquire or install or sell or otherwise dispose of (or change the location of) any spindle worked by power and use it for the purpose of manufacturing wool- len yarn.'

(6) It is not disputed that the provisions of this Control Order are applicable to the spindles which are the subject matter of the present suit and also the fact that no permission has been obtained from the Textile Commissioner, either to acquire or c sell these spindles. The statement of the defendant that the Spindles could not be delivered with the permission of the Textile Commissioner and that the plaintiff did not infom the defendant that it had ever obtained the permission of the Textile Commissioner for the transfer of these spindles, has gone unchallenged. Mr. Lalit Khaitan (Public Witness -3), who is Director of the plaintiff, admitted that transfer or sale of the spindles required permission of the Textile Commissioner. He, however, stated that he did not know whether any permission was taken by the plaintiff, though he added with reference to letter (Ex. P-4) that it was the responsibility of the defendant to secure such permission as might be necessary for the transfer of the spindles. It could also not be disputed that both the parties were aware of the provisions of the Control Order. Mr. Dutta, thereforee, submitted that since there is a complete prohibition in law foi the sale of the spindles, the condition or the object of the agreement in question is not lawful and the agreement is, thereforee, void. He thereforee, submitted that the suit is liable to be dismissed and had conceded that his claim for refund of Rs. 10,000.00 has also to be rejected on that analogy. Mr. Dutta referred to the provisions of Sections 23, 24 and 65 of the Contract Act (for short the Act). He also referred to a decision of the Supreme Court in Kuil Collieries Ltd. v. Jhark hand mines Ltd. and others : [1975]1SCR703 . Tn this case a mining lease was granted to the plaintiff and a sum of Rs. 80,000.00 was paid by him in pursuance to the lease. The plaintiff did not get the possession of title leased property and he, thereforee, instituted a suit for recovery of leased property along with mesne profits and in the alternative for the refund of Rs. 80,0001- and certain other amounts. The plaintiff, however, confined his claim to the sum of Rs. 80,000.00 as under the Bihar Land Reforms Act, the relief regarding possession of the mines became unenforceable in the case of the plaintiff. Under the Mineral Concessions Rules of 1949, any stipulation for payment of salami was rendered illegal and the lease on that basis was also illegal. The Trial Court held that the plaintiff was well aware of these provisions of law and was, thereforee, not entitled to claim relief under Section 65 of the Act. Under this Section if an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. The Supreme Court held that provisions of Section 65 of the Act were not applicable in the present case and it was observed as under :-

'THE section makes a distinction between an agreement and a contract. According to Section 2 of the Contract Act an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. thereforee. when the earlier part of the section speaks of an agreement being discovered to be void it means that the agreement is not enforceable and it, thereforee, not a contract. It means that it was void. It may be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the Section refers to a contract becoming void. That refers to a case where an agreement which was originally enforceable and was. thereforee, a contract, becomes void due to subsequent happenings. In both these cases any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it. But where even at the time when the agreement is entered into both the parties knew that it was not lawful and, thereforee, void, there was no contract but only an agreement and it is not a case where it is discovered to be void subsequently. Nor is it a case of the contract becoming void due to subsequent happenings. thereforee, Section 65 of the Contract Act did not apply.'

The Supreme Court also held :

'............SO there was no occasion for the plaintiff to have been under any kind of ignorance of law under the Act and the Rules. Clearly, thereforee, this is not a case to which Section 65 of the Contract Act applies. Nor is it a case to which Section 70 or Section 72 of the Contract Act applies. The payment of the money was not made lawfully, nor was it done under a mistake or undercoercion.'

Mr. A. B. Saharya, learned counsel for the plaintiff, agreed that provisions of Section 65 of the Act were not applicable in the present case. He submitted that this judgment was not applicable in his case and rather it negatived the claim put forward by the defendant in so far as he seeks refund of the amount of Rs. 10,000.00 paid by him either as part of the purchase price or by way of earnest money.

(7) Under Section 23 of the) Act 'The consideration or object of an agreement is lawful, unless- It is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law: or. . . . . .............

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void.'

Section 24 of the Act is as follows:-

'24. If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single objection, is unlawful, the agreement is void.'

(8) With reference to these Sections of the Act and read with Clause 3(1) of the Control Order of The Essential Commodities Act, 1955, Mr. Dutta submitted that the contract in question was forbidden by law and that it was of such a nature that if permitted, it would defeat the provisions of the law which prohibits the acquisition and sale of the spindles without permission of the Textile Commissioner. Mr. Dutta referred to a Full Bench decision of the Jammu and Kashmir High Court in Ghulam Ahmed v. Mohammad Iqbal and others AIR 1970 J&K; 165(2). This was a suit lor dissolution of partnership and rendition of accounts. The plaintiff and the defendants had entered into a partnership by a deed dated 3rd January, 1969, in respect of a truck. This truck was. however, being driven by the defendant who was to render accounts to the plaintiff. It was, however, pleaded by the defendant that the route permit could not be transferred in favor of anybody and in the partnership deed the route permit was also transferred and, thereforee, the partnership deed was illegal and suit not maintainable. The Court found that there was failure to comply with Section 59 of the Motor Vehicles Act before transferring the route permit and as such the partnership in question was an illegal contract and was void in its entirety. The suit of the plaintiff was. thereforee, dismissed. Section 59 of the Motor Vehicles Act is as under :-

'SAVE as provided in Section 61, a permit shall not be transferable from one person to another except with the permission of the transport authority which granted the permit and shall not without such permission operate to confer on any person to whom a vehicle covered by the permit is transferred any right to use that vehicle in the manner authorised by the permit.'

(9) Mr. Saharya on the other hand submitted that there was no absolute bar under the law for transfer of the spindles and that this could be done with the permission of the Textile Commisioner. He said that it was the responsibility of the defendant to apply for permission and that the plaintiff was absolved of any such responsibility. He submitted that since the defendant failed to discharge his obligation under the agreement and as he had already taken delivery of the spindles, the suit of the plaintiff should be decreed. Mr. Saharya also submitted that there was no specific plea taken in the written statement challenging the validity of the agreement in question and no specific issue raised. I am afraid, I cannot agree to any of the submissions made by Mr. Saharya. The plea is very much there in the written statement of the defendant. Though, no specific issue was raised as such, yet I find from the pleadings and evidence on record that the validity of the agreement in question was very much in issue. In Surasaibalini Debi v. Phanindra Mohan Majumder : [1965]1SCR861 Ayyangar J. observed as under :-

'............WHEREa contract or transaction ex facie is illegal there need be no pleading of the parties raising the issue of illegality and the Court is bound to take judicial notice of the nature of the contract or transaction and mould its relief according to the circumstances..............'

(10) I put it to Mr. Saharya that if I decree the suit would it not have the effect of negating the provision of law as contemned in the Control Order. His reply was that a transaction remains unaffected and penalty and prosecution is provided if the provision of law is contravened. This argument is merely stated to be rejected. In Koteswar Vittal Kamath v. K. Rangappa Baliga and Co. : [1969]3SCR40 I find complete answer to the argument put forward by Mr. Saharya.

(11) In this case the plaintiff instituted a suit for recovery of damages for breach of contract in respect of the goods purchased by the plaintiff on behalf of the defendant and of which the defendant refused to take delivery on the due dates. The plaintiff was carrying on the business as commission agents. The defendant placed three orders for purchase of hundred candies of cocoanut oil for one month's 'vaida' and, in accordance with those orders the plaintiff purchased hundred candies of cocoanut oil on three different dates. Since the defendant refused to take delivery of the goods on due dates, the plaintiff instituted the suit for damages being the difference in prices of the goods as purchased by him and the price prevailing as per closing market rates on the due dates. One of the grounds on which the claim in the suit was questioned, was that all these three contracts were onward Contracts and were void and unenforceable because they were made in contravention of the prohibition contained in the Travencore-Cochin Vegetable Oils and Oilcakes (Forward Contract prohibition) Order, 1950. There was another order called the Vegetable Oils and Oilcakes (Forward Contracts Prohibition) Order, 1119. There was some controversy as to which particular order was applicable. But the Supreme Court held as follows :-

'..........Under either of those Orders, the transactions entered into between the appellant and the respondent were prohibited and. having been entered into against the provisions of law. no parly can claim any rights in respect of the three contracts in suit. The claim for damages for breach of those contracts by the respondent against the appellant was there fore, not maintainable.'

(12) In Waman Shriniwas Kini v. Ratilal Bhagwandas and Co. : AIR1959SC689 the Supreme Court with reference to Section 15 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 which prohibited sub-letting observed that an agreement entered into after the Act has come into force, contrary to the provisions of Section 15 would be unenforceable as being in contravention of the express provision of the Act and which prohibited it and that it was not permissible to any person to rely upon a contract the making of which the law prohibits.

(13) In Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty & Sons etc. : [1975]3SCR1 the defendant had appointed the plaintiff as his commission agents to do business in oil seeds in the Bombay market. The plaintiffs were authorised to do business through sub-agents working on commission basis. The plaintiffs were also authorised to do the business according to the custom of 'badla' prevailing in the Bombay market. On loss being incurred by the plaintiffs on settlement of accounts of the 'badla' transactions with the other parties to the 'badla' transactions, the plaintiff sued the defendant for indemnity to recover the losses under Section 222 of the Contract Act. Provisions of Bombay Forward Contracts Control Act 1947 and Oil Seeds Forward Contracts Prohibition Order 1943, prohibited Forward Contracts. It was held that though the contract between the plaintiffs and defendant that the plaintiffs should enter into badla transactions on defendant's behalf, did not amount' to a wagering contract as between the plaintiffs and defendant, yet, the contract was otherwise void as having been entered into for an object which was- prohibited by law, namely, the statutes forbidding forward contracts. These contracts were also not shown to be covered by the conditions for their exemption from prohibition. These were held to be prohibited under the foresaid statues. The Supreme Court noted the contention that at least contracts between the plaintiffs and defendants were not wagering contracts though each party knew that their object was to indulge in speculation. It was also contended before the Supreme Court that the contracts in question were collateral contracts quite unaffected by the objects or intentions of defendants in entering these contracts which involved making of other contracts which may or may not be wagering contracts were not prohibited. The Supreme Court observed as under :-

'IF an agreement is merely collateral to another or constitutes an aid facilitating the carrying out of the object of the other agreement which, though void, is not in itself prohibited, within the meaning of Section 23 of the Contract Act, it may be enforced as a collateral agreement. If on the other hand, it is part of a mechanism meant to defeat what the law has actually prohibited, the Courts will not countenance a claim based upon the agreement because it will be trained with an illegality of the object sought to be achieved which is hit by Section 23 of the Contract Act. It is well established that the object of an agreement cannot be said to be forbidden or unlawful merely because the agreement results in what is known as a 'void contract'. void agreement, when coupled with other facts, may become part of a transaction which creates legal rights, but this is not so if the object is prohibited or 'mala in se.' thereforee, the real question before us is : Is the agreement between the parties in each case, which was to be carried out in Bombay, so connected with the execution of an object prohibited by either a law applicable in Bombay or a law more widely applicable so as to be hit by Section 23 of the Contract Act ?'

After discussion the Supreme Court gave answer to the question posted in para 19 of the judgment as under:-

'THE result is that we think that the objects of contracts set up the plaintiff cannot be carried out by merely entering into them outside Bombay or engaging third parties as sub-agents, or, in any other capacity, to execute them. The provisions of the Control Order are applicable throughout India .and are not confined to forward contracts entered into or meant to be carried out in any particular part of India. Their violation is a criminal offence. A claim for indemnification, under Section 222 Contract Act, is only maintainable if the acts, which the agent is employed to do, are lawful. Agreements to commit criminal acts are expressly and specifically excluded, by Section 224 of the Contract Act, from the scope of any right to an indemnity.'

(14) Applying the principles enunciated above and the law on the subject it is quite clear that the agreement in question is illegal and cannot be enforced. The prohibition against acquisition and sale of spindles is absolute in the absence of any permission from the Textile Commissioner. If I decree the suit it will, in fact, be putting at naught the provisions of the Control Order. The plaintiff must, thereforee, fail. For similar reasons the defendant also fails on issue No. 7. Even, otherwise also this issue could not have been decided in favor of the defendant as the claim for refund of Rs. 10,000.00 was not raised by way of any counter-claim by the defendant.

(15) The prohibition in law to the transfer of spindles is absolute. The law is so strict that no one could even change the location of the spindles. Transfer could be effected only with the prior permission in writing of the Textile Commissioner. Permission of the Textile Commissioner is not. thereforee. an idle formality. No one can be heard to say that as penalty and prosecution is provided if there is contravention of the provisions of Clause-3 of the Control Order, the agreement for sale of spindles which, in the present case, is without any prior written permission of the Textile Commissioner, could be given eflect.

(16) The issue regarding jurisdiction was not pressed before me by the defendant. But for the legal bar, I would have decided all issues in favor of the plaintiff except issue relating to interest on which there appears to be no evidence.

(17) I would, thereforee, dismiss the suit. But, as observed by the Supreme Court in Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty and Sons etc. (supra) 'inasmuch as both sides to the unlawful agreements are in 'parii delicto', I would leave the parties to bear their own costs.


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