1. This second Appeal has been referred to a Bench by Venkataramana Rao, J., because the views expressed by Coutts-Trotter, C.J., in Kamayya v. Mamayya (1916) 32 M.L.J. 484 and Subbaraya Chetty v. Subbaraya Chetty (1926) 24 L.W. 500 and with Ramesam, J., in Ramaswami Naicker v. Alamelu Ammal (1923) 46 M.L.J. 298 and by Abdur Rahim, J., in Suryanaraya Nayakaram v. Butchalah Naidu (1916) 1 M.W.N. 107, appear to be in conflict with the other decisions of this High Court and of the Privy Council in Petherperumal Chetty v. Muniandy Servai (1908) 18 M.L.J. 277 : L.R. 35 Cal. 551 and other cases.
2. The suit out of which this second appeal arises was one instituted by a minor plaintiff by his father and next friend and his brother for recovery of possession of the suit lands which were conveyed in the name of their deceased mother Bangaramma by her father, the first defendant. The second defendant is the son of the first defendant. The sale deed in question is dated 11th October, 1916. The defence set up is that it was a benami transaction entered into by the first defendant to cheat his son the second defendant in order to deprive him of getting a share in the property and that the consideration mentioned in the sale deed was not paid and not true; in other words, that the transfer was for the purpose of excluding the property from partition. Subsequent to the sale deed the first defendant filed O.S. No. 946 of 1918 in the District Munsif's Court of Kovvur against his son the second defendant for partition of the joint family property. In the Schedule he did not include the suit property as one of the items of the joint family property. The second defendant objected to the exclusion of the property. In reply to this objection the first defendant filed an affidavit wherein he stated that the suit properties were sold by him to his daughter Bangaramma but nevertheless he had no objection to include them in the suit but said that the properties should be allotted to his share at the partition. He also filed a petition for amendment wherein for the reasons mentioned in the affidavit he asked that the suit properties might be allotted to his share. Subsequently there was a compromise deed between the first defendant and the second defendant and the suit properties were included in the partition but allotted to the share of the first defendant as desired by him and he got possession of the properties from the second defendant who at that time was in possession of them. After the recovery of these properties the first defendant appears to have executed a will Ex. A in 1923, wherein he omitted to dispose of the property. The learned District Munsif found that the sale deed was a genuine transaction and further that it was not open to the first defendant to plead his own fraud and resist the claim of the plaintiffs. The Subordinate Judge, however, held that the transfer was benami and that the plaintiffs were not entitled to get possession of the suit lands from the first defendant. The finding of the learned Judge on the question of benami is a finding of fact and must therefore be accepted.
3. The question before us is whether it is open to the first defendant to plead his own fraud in defence to the claim of the plaintiffs for possession. No finding upon this question was given by the learned Subordinate Judge, but as it was clear that this point was argued before him, Venkataramana Rao, J., allowed it to be argued.
3. As our learned brother points out, there are two well-recognised principles in English law : (1) that no man can set up his own iniquity as a defence any more than as a cause of action. This principle was laid down in Doe dem Roberts v. Roberts (1819) 2 Born. and Ald. 367 : 106 E.R. 401 and (2) restitutio in integrum is excluded in respect of all acts of parties to contracts void for illegality. An exception is engrafted to this rule by allowing a locus penitentiae to one or both of the parties in consideration of the fact that the illegal purpose of the contract has not yet been fulfilled. But where the illegal purpose has been partly fulfilled, no relief is given.
4. In Kamayya v. Mamayya (1916) 32 M.L.J. 484 the fraud had been effected and the defendant was held precluded from setting up that fraud in answer to a suit for possession. Coutts-Trotter, J., as he then was, stated:
I do not think that there is any conflict between Doe dem Roberts v. Roberts (1819) 2 Born. and Ald. 367 : 106 E.R. 401 and Prole v. Wiggins (1886) 3 Bing. (N.C.) 230 : 132 E.R. 398. The distinction between the two cases is indicated by Tindall, C.J., in the latter and the principle I gather from it is this; if the plaintiff can set up a case consistent with the terms on the face of the document or with what I may call the face import of the transaction on which he bases his claim, then the defendant cannot defeat that claim by alleging a fraud that implicates himself and showing that because of that fraud the document or the transaction is not what it appears to be. That is Doe dem Roberts v. Roberts (1819) 2 Born. and Ald. 367 : 106 E.R. 401. If on the other hand the plaintiff cannot make a case on the document or transaction on its face but has to go behind it and allege some other transaction which involves implicating himself in a fraud with the defendant, then the defendant must succeed. That is the case of Prole v. Wiggins.1 In other words, that party fails who first has to allege the fraud in which he participated.
5. In Subbaraya Chetty v. Subbaraya Chetty (1926) 24 L.W. 500, Coutts-Trotter, C.J., stated:
As I understand the law a party cannot set up his own fraud whether it proved fruitful or not and if he entered into a transaction, the object of which was to defraud his creditors, he is debarred from relying upon that transaction and setting up his own fraud whether the fraud did in fact prove infructuous or not.
6. And in regard to the decision in Kamayya v. Mamayya (1916) 32 M.L.J. 484 stated:
I should like to point out that as at present advised, I see no justification for the words that have, got into the head-note of the case Kamayya v. Mamayya (1916) 32 M.L.J. 484 in which the late Chief Justice Sir John Wallis and myself gave judgment. The words introduced are where the fraud introduced has been effected'. If that means merely that the fraudulent thing has been done, namely, the execution of a document with the intention to defraud creditors, I have no further criticism to make but if it means that the fraud must not only have been carried out in the sense of the transaction entered into with the parties but that the fraud must have de facto resulted in defeating the creditors' rights and causing loss to them, I am of opinion that the head-note is not warranted by that decision.
7. As before stated, he expressed the same opinion sitting with Ramesam, J., in Ramaswami Naicker v. Alamelu Ammal (1923) 46 M.L.J. 298.
8. The question to be considered in this case is whether a fraud need have been effected in order to prevent a person who has been a party to it pleading his own fraud, or whether the mere fraudulent intention evidenced by the transaction is sufficient. If the former, the question is whether in fact a fraud has been effected by the fraudulent agreement or, as was stated by Subramania Aiyar, O.C.J., and Sankaran Nair, J., in Muthoo Raman Chetty v. Krishna Pillai : (1905)15MLJ478 whether there has been part performance of a substantial character of such an agreement. In Suryanarayan Nayakaram v. Butchalah Naidu (1916) 1 M.W.N. 107, the plaintiff and the fourth defendant were two undivided brothers. During the absence of the fourth defendant, the younger brother, the plaintiff, who had just then attained majority and who was then living with his father-in-law (the first defendant) and his brother-in-law (the second defendant) alienated in 1900 a portion of the family properties including his brother's share in favour of his brother-in-law. In 1906 there was a division of family properties between the plaintiff and his brother and property so alienated was excluded therefrom. Later on the fourth defendant having discovered that the sale of 1900 was benami and not real and was intended to deprive him of his share in the property so alienated brought a suit in 1911 against the second defendant and obtained a decree for his half share of the property. During the pendency of that suit the plaintiff instituted a suit for the recovery of his half share in the properties sold to the second defendant substantially on the same allegations as the fourth defendant. It was held that the sale to second defendant having originally been intended to defraud the fourth defendant and that intention having been fully carried into effect either when possession was given in pursuance of the sale or at any rate at the time of the partition in 1906 it was not competent to the plaintiff to go behind the arrangement and sue to recover the property. Abdur Rahim, J., says:
The real test which is laid down here is what I have stated, namely, the plaintiff can sue so long as his fraud has not been carried out, but not after it has been carried out wholly or partially. Here I may point out that the fourth defendant was kept out of his property for a number of years. When he recovered the property by a suit, it is likely that he only recovered mesne profits for three years. That would go to show that he was not restored exactly to the same position as he was in before this fraud was perpetrated.
Ayling, J., said:
It cannot be said in this case that the fraud was not at least partially successful. Its immediate object was attained when partition was effected without the inclusion of this property.
9. This case certainly does not support the view expressed by Coutts-Trotter, C.J., and as it appears that the fraud was to a substantial extent carried out, any opinion which may seem to have been expressed in another part of the judgment indicating that it is immaterial whether a fraud was wholly or partially carried out is obiter. But the before-stated test applied by Abdur Rahim, J., does definitely enable the plaintiff to sue so long as the fraud has not been carried out. In Kutayya v. Mahalakshmamma : AIR1933Mad457 a person conveyed property benami to another for the purpose of effecting a fraud on his creditors; and such fraud had been effected; and it was held that he was incapable of setting up the benami character of the transaction by way of defence in a suit by the transferee for possession under the conveyance. In this case Kamayya v. Mamayya (1916) 32 M.L.J. 484 was considered and followed. But Anantakrishna Aiyar, J., Sundaram Chetty, J., and Varadachariar, J., have each questioned the correctness of the view expressed by Coutts-Trotter, C.J. In Venkataratnam v. Venkataswami : AIR1929Mad807 Anantakrishna Aiyar, J., held that to enable a fraudulent confederate to retain property transferred to him the contemplated fraud must be effected and that then and then alone does the fraudulent grantor, or giver, lose the right to claim the aid of the law to recover the property he has parted with and followed the Privy Council decision in Petherperumal Chetty v. Muniandy Servai (1908) 18 M.L.J. 277 : L.R. 35 IndAp 98 : I.L.R. 35 Cal. 551 and dissented from Kamayya v. Mamayya (1916) 32 M.L.J. 484. Sundaram Chetty, J., in Subbaraya Naicker v. Venkatesa Naicker A.I.R. 1934 Mad. 252 took the view that the observations of Coutts-Trotter, C.J., in Subbaraya Chetty v. Subbaraya Chetty (1926) 24 L.W. 500 are inconsistent with the pronouncement of the Privy Council in Petherperumal Chetty v. Muniandy Servai (1908) 18 M.L.J. 277 : L.R. 35 IndAp 98 : I.L.R. 35 Cal. 551 and Varadachariar, J., in Venkatakrishnayya v. Venkataratnam (1935) 42 L.W. 452 observed that the view expressed by Coutts-Trotter, C.J., in more than one decision of his went farther than the Privy Council decision. The view expressed in the English case of Taylor v. Bowers (1876) 1 Q.B.D. 291 is opposed to that of Coutts-Trotter, C.J., in Kamayya v. Mamayya (1916) 32 M.L.J. 484. Mellish, L.J., on p. 300, says:
Nevertheless, if the illegal transaction had been carried out, the plaintiff himself, in my judgment, could not afterwards have recovered the goods. But the illegal transaction was not carried out; it wholly came to an end. To hold that the plaintiff is enabled to recover does not carry out the illegal transaction, but the effect is to put everybody in the same situation as they were before the illegal transaction was determined upon, and before the parties took any steps to carry it out. That, I apprehend, is the true distinction in point of law. If money is paid or goods delivered for an illegal purpose, the person who had so paid the money or delivered the goods may recover them back before the illegal purpose is carried out; but if he waits till the illegal purpose is carried out, or if he seeks to enforce the illegal transaction, in neither case can he maintain an action; the law will not allow that to be done.
10. Taylor v. Bowers (1876) 1 Q.B.D. 291 was one of the authorities relied upon in the judgment of the Privy Council in Petherperumal Chetty Muniyandy Servai (1908) 18 M.L.J. 277 : L.R. 35 IndAp 98 : I.L.R. 35 Cal. 551 . The facts of the latter case are as follows: In order to defeat the claim of an equitable mortgagee of certain property, the predecessor-in-title of the respondent, and co-member with him of a joint Hindu family, executed on the 11th June, 1895, what purported to be a deed of sale of the property in favour of the predecessor-in-title of the appellant. The claim, however, was decreed, the Court finding that the vendee under the alleged deed of sale was aware of the equitable mortgage, when the deed was executed and the decree was satisfied by money raised on the security of the property by the vendee. In a suit by the respondent against the appellant to have it declared that the deed of 11th June, 1895, was merely a benami transaction, and to recover possession of the property, it was found on the facts that the deed was benami and fraudulent and inoperative as against the plaintiff. v It was held that the purpose of the fraud not having been effected there was nothing to prevent the plaintiff from repudiating the transaction as being benami and recovering possession of the property. Lord Atkinson on p. 558 stated that the plaintiff in suing to recover possession of his property was not carrying out the illegal transaction but was seeking to put every one as far as possible in the same position as they were in before that transaction was determined upon and added:
It is the defendant who is relying upon the fraud, and is seeking to make a title to the lands through and by means of it. And despite his anxiety to effect great moral ends, he cannot be permitted to do this. And, further, the purpose of the fraud having not only not been effected, but absolutely defeated, there is nothing to prevent the plaintiff from repudiating the entire transaction, revoking all authority of his confederate to carry out the fraudulent scheme, and recovering possession of his property. The decision of the Court of appeal in Taylor v. Bowers (1876) 1 Q.B.D. 291 and the authorities upon which that decision is based, clearly establish this. Symes v. Hughes (1870) 9 Eq. 475 and In re Great Berlin Steamboat Company3 are to the same effect. And the authority of these decisions, as applied to a case like the present, is not, in their Lordships opinion, shaken by the observations of Fry, L.J., in Kearley v. Thomson (1890) 24 Q.B.D 742.
11. Kearley v. Thomson (1890) 24 Q.B.D. 742. It was there held by the Court of Appeal that where money is paid under an illegal contract which has been partially carried into effect, the money cannot be recovered back. Fry, L.J., on p. 746 criticises the view of Mellish, L.J., in Taylor v. Bowers (1876) 1 Q.B.D. 291 already referred to and says:
It is remarkable that this proposition is, as I believe, to be found in no earlier case than Taylor v. Bowers (1876) 1 Q.B.D. 291 which occurred in 1867 and, notwithstanding the very high authority of the learned Judge who expressed the law in the terms which I have read, I cannot help saying for myself that I think the extent of the application of that principle, and even the principle itself, may, at some time hereafter, require consideration, if not in this Court, yet in a higher tribunal.
12. In view of the judgment of the Privy Council, it must be taken that it is not in agreement with what was stated by Fry, L.J., in Kearley v. Thomson (1890) 24 Q.B.D. 742 in criticism of Taylor v. Bowers (1876) 1 Q.B.D. 291. No useful purpose will be served by a further citation of authorities. It is sufficient to say that Petherperumal Chetty v. Muniyandy Served (1908) 18 M.L.J. 277 : L.R. 35 IndAp 98 : I.L.R. 35 Cal. 551 lays down the law upon this point and was rightly followed by Anantakrishna Aiyar, J., Sundaram Chettiar, J. and Varadachariar, J.
13. There remains to be considered the further question whether the fraud was effected, partially effected, or there was a substantial part-performance of the intention to defraud. In the present case, the first defendant no doubt intended to defraud and entered into the transaction with that object in view and in pursuance of the deed excluded the property from the schedule in his suit for partition. After that he did nothing more to carry out his original fraudulent intention. On the contrary, he compromised the matter and agreed to the inclusion of the property and no damage resulted to any body. That being so, applying Petherperumal Chetty v. Muniyandy Servai (1908) 18 M.L.J. 277 : L.R. 35 IndAp 98 : I.L.R. 35 Cal. 551 the first defendant was entitled to set up that defence and to succeed in the suit. It follows, therefore, that this Second Appeal must be dismissed with costs.