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The Municipal Council, Tiruvarur, Represented by Its Chairman, Mr. S.K. Subbarayalu Naidu Vs. P.R. Kannuswami Pillai and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai
Decided On
Reported inAIR1930Mad600; (1930)58MLJ377
AppellantThe Municipal Council, Tiruvarur, Represented by Its Chairman, Mr. S.K. Subbarayalu Naidu
RespondentP.R. Kannuswami Pillai and anr.
Cases ReferredMahomed Ebrahim Molla v. The Commissioners
Excerpt:
.....full amount claimed in the plaint and at the worst he can be made liable only for a moiety of the suit amount. the suit was for balance of money due and was dismissed by the lower court on the ground that no written contract was executed as required by section 45 of the old district municipalities act, iv of 1884. it was argued that though no claim could be made on the basis of the written contract, a decree should have been given at any rate, on the footing of executed consideration, the defendant having been found to have enjoyed the right for the whole year. 890 the learned judge seems to have failed to note that the cases he relied on were not cases, where the contract was governed by any statute. it appears that the contract under which defendant 1 became entitled to levy and..........council of tiruvarur represented by its chairman. on the 6th of february, 1922, the municipal council held an auction of the right to collect tolls in the municipality for the year 1922-23 and to the 1st defendant was knocked down the right to collect tolls for rs. 19,925. the printed notice under which the auction was, held required the successful bidder, within ten days of the acceptance of his bid, to make a deposit of two months' rental as security and pay the amount due in twelve equal instalments, the security deposit being adjusted in the rental of the last two months. the notice further provided that for any amount due, the bidder should pay the interest at the rate of one anna per diem for every hundred rupees or fraction thereof. the 1st defendant bid for and accepted the.....
Judgment:

Pakenham Walsh, J.

1. The plaintiff in this case is the Municipal Council of Tiruvarur represented by its Chairman. On the 6th of February, 1922, the Municipal Council held an auction of the right to collect tolls in the Municipality for the year 1922-23 and to the 1st defendant was knocked down the right to collect tolls for Rs. 19,925. The printed notice under which the auction was, held required the successful bidder, within ten days of the acceptance of his bid, to make a deposit of two months' rental as security and pay the amount due in twelve equal instalments, the security deposit being adjusted in the rental of the last two months. The notice further provided that for any amount due, the bidder should pay the interest at the rate of one anna per diem for every hundred rupees or fraction thereof. The 1st defendant bid for and accepted the lease of the toll-gates subject to the above conditions. On the, 28th of February, 1922, defendants 1 and 2 jointly put in a petition to the Chairman of the Municipal Council in which they represented that though the bid stood in the name of the 1st defendant, Kannuswami Pillai, it was really made on behalf of and for the benefit of both petitioners, namely, defendants 1 and 2. They further stated that they made a deposit on that day of Rs. 660-6-8 (by 1st defendant) and Rs. 1,660-6-8 (by 2nd defendant) and prayed that a muchilika might be taken from both of them jointly and both might be treated as lessees of the toll-gates. This petition was accepted and ordered by the Chairman accordingly. For some reasons or other no muchilika was executed by either of the parties though the tolls were being collected by the defendants, and it was not until the close of the official year 1922-23 that a notice was issued to the defendants to execute a muchilika. The defendants in the meantime had been complaining by petition's to the Council about certain grievances. The Council brings this suit for the balance of the lease amount due--Rs. 4,497-15-8 plus Rs. 105-10-0 balance of interest for irregular payments and Rs. 742-8-0 interest on the balance of the lease amount, making a total of Rs. 5,346-1-8. The 1st defendant pleaded that there was no completed contract between himself and the Municipality, that the plaintiffs were not entitled to appropriate, as they had done, the amount of Rs. 293-12-0 towards interest as it was not paid as such, that the plaintiffs cannot claim interest and the rate claimed is penal, that there was no wilful default on the part of the defendants to execute the muchilika and that (for certain reasons which are given) the defendants were subjected to loss on account of the negligence of the Municipality and they were further subjected to heavy loss owing to unforeseen heavy rains and high floods in the rivers and the consequent absence of traffic by roads. The 2nd defendant stated that as he did not bid at the auction be had incurred no liability to the Municipal Council, that he adopted the other defences raised by the 1st defendant and that, in any event, he cannot be made liable for the full amount claimed in the plaint and at the worst he can be made liable only for a moiety of the suit amount. The following issues were raised:

1. Whether there has been a complete contract between the parties as set out in the plaint, and, if not, whether the suit is sustainable?

2. Whether the suit is sustainable in the absence of a muchilika as required by Section 69 of the Madras District Municipalities Act?

3. What is the exact amount due from the 1st defendant?

4. Whether the plaintiff is entitled for interest, and, if so, to what amount?

5. Whether the appropriation by plaintiff of Rs. 293-12-0 for interest is lawful and warranted?

6. Whether there was a default on the part of the defendants to execute a muchilika as alleged in paragraph 8 of the plaint, or was the default to take the same due to the plaintiff as pleaded in paragraphs 8 and 12 of the written statement?

7. Whether defendants are estopped from pleading nonliability as alleged in paragraph 9 of the plaint?

8. To what equities are plaintiff and defendants entitled?

9. Whether plaintiff is, entitled to any and, if so, to what relief?

10. Whether the 2nd defendant who was not a bidder at the auction can in any way be made liable for the suit claim ?

2. The most important issues are issues 1 and 2. Section 69, clause 1 of the Madras District Municipalities Act of 1920 lays down that every contract made by or on behalf of a Council shall be in writing and shall be signed by two Municipal Councillors. This admittedly was, not done. The Lower Court finds that both the parties were to blame for the non-execution of the muchilika and that finding has not been canvassed before its. The learned Subordinate Judge held on issue 1 that there was no -completed contract and on issue 2 following the decision in Raman Chetti v. The Municipal Council, Kumbakonm I.L.R.(1907) M. 290 that (he suit was not sustainable under Section 69 of the Act. He gave findings on the other issues also. As regards issue 10 he found that the 2nd defendant was not liable. As regards issues, 4 and 5 his finding is as follows:

The plaintiff claims interest at one anna per Rs. 100 per diem as laid down in Exhibit A-1. But the Council had accepted the amounts without charging that interest as can be seen from pages 7 and 9 of Exhibit J, and the balance also has been struck as Rs. 4,204-3-8. It is argued that there having been no contract in writing, the plaintiff has no right to ignore some conditions and enforce other conditions. If it is an implied contract, then the plaintiff will only be entitled to charge interest at a reasonable rate, that is, at 6 per cent, per annum. I find that if plaintiff is entitled to any amount as lease arrears, the 1st defendant will be liable to pay interest on the arrears at 6 per cent. per annum and not for the late payments accepted by the plaintiff without any demur. The plaintiff has no right to appropriate Rs. 293-12-0 subsequently, since the entries in page 7 show that no appropriation for interest for late payment had been intended.

3. As regards issue 7 he held that there was no estoppel. As regards issue 8 he appears to hold that the plaintiff introduced a new restriction after the lease was granted by which collection of tolls on cattle was prohibited, that if the defendants are entitled to claim any damages in respect of that and other irregularities, they must do so by a separate suit and that they are not entitled to any equities in this suit. As, regards issue 3 he says that there is no prayer in the suit for damages for use and occupation and that the plaintiff would be entitled to get only what the defendants had derived from the toll income. As regards issue 9 he held that the plaintiff is not entitled to any relief and dismissed the suit directing each party to bear his, costs owing to non-execution of the muchilika. The plaintiff Municipal Council has appealed.

4. The important question in this case is whether the contract is null and void and the suit unsustainable because the terms of Section 69 of the District Municipalities, Act were not complied with. The matter has come up several times before the Courts in England and India. In India we are governed by the District Municipalities Act and as the decisions in India on the particular point in question are particularly all in favour of the view taken by the learned Subordinate Judge and as the matter has been very often discussed in various judgments, we do not think it necessary to enter into a very lengthy examination of the authorities here. I shall first take the cases directly on the point where the want of compliance with the statutory obligations has been admitted as a defence to a suit brought by a Municipality. We have two cases in Madras,. One is Raman Chetti v. The Municipal Council, Kumbakonam I.L.R.(1907) M. 290. In that case the Municipality sued to recover damages and arrears from the defendant, a toll contractor who had purchased at public auction the right of collecting tolls for three years. The defendant, though he entered on possession and was collecting tolls, did not execute the written agreement which was required by the provisions of Section 45 of the Municipalities Act. Disputes, arose between the plaintiff and the defendant and after about 17 months of enjoyment, the defendant was put out of possession and a resale of the remainder of the term resulted in a loss to plaintiff. The plaintiff sued to recover the loss sustained by the re-sale and the arrears due. The defendant pleaded inter alia that, there being no contract, fulfilling the requirements of Section 45, plaintiff's suit was unsustainable. The Subordinate Judge held that the agreement, though not binding on the Municipality, was binding on the defendant and gave a decree for plaintiff. The learned Judges held that the view of the Subordinate Judge that it does not bind the Municipal Council but does bind the other party is erroneous, They quoted Ahmedabad Municipality; v. Sulemanji I.L.R.(1903) B. 618. This Madras case in so far at least it was a claim for arrears, is exactly on the same footing as the present case. This decision was followed in The Madura Municipal Council v. Veeranna Kone (1912) 16 I.C. 890 another Madras case. The only decision to the contrary in this Presidency is Srirangam, Municipal Council v. Bodi : AIR1924Mad162 decided by Krishnan, J., setting alone. In that case, the defendant had bought in auction the right to collect fees for slaughtering cattle in the Municipal slaughter-house. The suit was for balance of money due and was dismissed by the Lower Court on the ground that no written contract was executed as required by Section 45 of the old District Municipalities Act, IV of 1884. It was argued that though no claim could be made on the basis of the written contract, a decree should have been given at any rate, on the footing of executed consideration, the defendant having been found to have enjoyed the right for the whole year. The learned Judge held that the authority quoted, Lawford v. The Billericay Rural Council (1903) 1 K.B. 772 was in favour of such a decree being given. He also quotes Douglass v. Rhyl Urban Council (1913) 2 Ch. 407 as, confirming the view taken in Lawford v. The Billericay Rural Council : He says that the decision in Raman Cheitti v. The Municipal Council, Kumbakonam I.L.R. (1907) M. 290 does not really deal with the question and that the observation in Ramaswami Chetty v. The Municipal Council, Tanjore I.L.R.(1906) M. 360 is based on Young & Co. v. Mayor, etc., of Royal Leamington Spa (1883) 8 A.C. 517. As was pointed out in The Madura. Municipal Council v. Veeranna Kone (1912) 16 I.C. 890 the learned Judge seems to have failed to note that the cases he relied on were not cases, where the contract was governed by any statute. One other Indian case is relied on for the appellant and that is Abaji Sitaram v. Trimbak Municipality I.L.R.(1903) Rule 66. The remark in that case is obiter. The issue on which the case was tried was whether the remission of a certain sum out of the amount due under a contract with the Municipality was valid; and it was found that the meeting which granted the remission not being properly summoned, such remission was invalid. The learned Judges observe, 'This discussion leads us to consider a point, which was raised before us, for the first time, and then only as a result of investigations made in the course of the hearing before us. It appears that the contract under which defendant 1 became entitled to levy and collect the tolls was not under seal, and so failed to comply with Section 30 (of Bombay Act II of 1884) to which I have already alluded. The Advocate-General, relying for this purpose on Section 23 of the Indian Contract Act, has asked us to hold that there was no contract at all under which the plaintiff Municipality can claim. Apart from the fact that this, is travelling outside the pleadings of the parties, we think, there is another reason why we cannot give effect to the contention. It is well-recognised law! in England that though a contract by a corporation must ordinarily be under seal, still where there is that which is known as an executed consideration, an action will lie though this formality has not been observed.' This is really obiter as the Judges, held that the plea was travelling outside the pleadings of the parties. As in Srirangam Municipal Council v. Bodi : AIR1924Mad162 the distinction between a contract made under a statute and one not made under a statute appears to have been lost sight of. On the other hand the most recent case on the point is Mohamed Ibrahim Molla v. Commissioners for the Port of Chitlagong I.L.R.(1927) C. 189 where it was held that a suit brought by the Port Commissioners of Chittagong on an agreement entered into in contravention of the mandatory provisions of Section 29 of the Chittagong Port Act, 1914, must be dismissed as the contract was not enforceable. This, judgment contains a very useful and succinct summary of the law on the point to which we will allude presently. In view of the fact therefore that the particular matter before us has been decided twice by two benches of this Court against the appellant's contention and also by the Calcutta High Court, while on the other side there are only the decision of single Judge in Srirangam Municipal Council v. Bodi : AIR1924Mad162 and the remark in Abaji Sitaram v. Trimbak Municipality I.L.R.(1903) B. 66 a very brief summary of the argument put forward by the learned Advocate for the appellant will be sufficient.

5. He admits that there is no English case which holds that. where the right to contract is given by a statute, a statutory body can maintain an action on a contract though the provisions of the statute have not been complied with, while such non-compliance will be a defence to an action brought against them on the contract. What has, been held with regard to Corporations is that, when such bodies are not contracting under a statute, they can maintain a suit on a partly executed contract though it has not been given under seal while they cannot do so as regards an executory contract. The matter has been succinctly put in Mohamed Ibrahim Molla v. The Commissioners for the Port of Chittagong I.L.R.(1927) C. 189 . The learned Judges say:

It is a rule of common law in England that, with certain exceptions, a corporation is bound by those contracts only which are made under the Corporate Seal. The exceptions are--(i) where the contract is executed, (ii) in small matters of very frequent occurrence, and (its) where it is impossible to affix the seal, as in cases of great urgency.

6. It has been clearly laid down in a number of cases, of which the leading cases are Young & Co. v. Mayor, etc., of Royal Leamington Spa (1883) 8 A.C. 517 and Hunt v. Wimbledon Local Board (1879) 4 C.P.D. 48 that where a corporation enters, into a contract under a statuted and the terms of the statute are not observed, the contract cannot be enforced against the corporation. But no English case has been quoted in which it was, held that this is not mutual and that the Corporation can on their side enforce such a contract. It is unnecessary to discuss the rulings which deal with statutory Corporations which do not contract under a statute. The learned Advocate, however, relied on two cases to show that a Corporation could enforce a contract which did not comply with the statutory provisions. These were, Bournemouth Commissioners v. Watts (1885) 14 Q.B.D. 87 and Brooks, Jenkins & Co. v. Torquay Corporation (1902) 1 K.B. 601. These cases, however, are distinguishable. In Bournemouth Commissioners v. Watts (1885) 14 Q.B.D. 87 the first case, it was a third party who sought to take advantage of the want of formality in the contract and it was held that there was nothing to prevent the local authority paying for the work of which it had the benefit and as, regards the fact that the contract was not sealed this did not excuse the third party who was liable for such work and did not afford a defence to such third party. In the second case it was held that the municipal seal had been affixed in time and hence the requirements of Section 174 of the Public Health Act had been complied with and by reason of this a new contract had been entered into of which the part execution of the old contract could be taken to be consideration.

7. The learned Advocate for the appellant argues that in India the position is peculiar and that, while a body contracting under a statute cannot enforce an unexecuted contract when all the terms of the statute are not complied with, yet when the contract has been wholly executed, the position is that, while they can urge this as a defence in a suit brought against themselves on the contract, it cannot be urged as a defence to a suit brought by them on the contract. For this he relies on the difference in the wording between Section 174, clause 5 of the Public Health Act and Section 69 (2) of the District Municipalities Act. While the former runs:

Every contract entered into by an urban authority in conformity with the provisions of this section, and duly executed by the other parties thereto, shall be binding on the authority by whom the same is executed...

8. Section 69 of the District Municipalities Act puts the matter negatively. It says,:

A contract executed or made otherwise than in conformity with the provisions of this and the last preceding section shall not be binding on the Municipal Council.

9. It is argued that we should infer from this difference in language that a contract executed otherwise than in conformity with the provisions of the District Municipalities Act, while it will not bind the Municipality, will bind the other party to the contract. It is certainly somewhat remarkable that this negative language should have been employed in that Act; but, on the other hand, it has been pointed out that though the Act was revised after the decisions in Raman Chetti v. The Municipal Council, Kumbakonam I.L.R.(1907) M. 290 and The Madura Municipal Council v. Veerarna Kone (1912) 16 I.C. 890 had been given no change was made in the section. If the meaning sought to be attached to it on behalf of the appellant is correct, these decisions are opposed to such interpretation. In view of the fact that all the decided cases on the point excepting Srirangam Municipal Council v. Bodi : AIR1924Mad162 are opposed to such an interpretation, we do not think that this argument can be accepted. It is difficult to see if the argument be accepted how an executory contract would differ from one executed.

10. Another argument adduced is that these formalities are only necessary in the interests of the rate-payers and that it is. not open to any one else to take advantage of them. The case of Frend v. Dennett (1858) 4 C.B. (N.S.) 576 : 140 E.R. 1217 is quoted for this purpose. What was held in this case was what has been so frequently decided--that want of formality in making a contract is a defence to a suit brought against the Corporation. The remark of Cock-burn, C.J., which is relied on, vis.,

I think the Local Board had no power to contract so as to bind the rates, unless they did so in the manner pointed out by the statute,

cannot be held to imply that they can enter into contracts enforceable by themselves but not enforceable by the other party. We, therefore, agree with the finding of the learned Subordinate Judge that the contract is not enforceable. This settles most of the other issues. But we cannot help observing that we are unable to agree with the remarks of the Lower Court on issue 8 and with its decision thereon. As, the learned Subordinate Judge has made some severe remarks against the Municipal manager in this connection, we will on this issue have to see if the Municipal Council introduced restrictions with regard to tolls on cattle which did not appear at the time of the original contract. It is certainly difficult to see why the defendants should not plead such a breach of the contract in this suit if it is true and why they should be driven to file a fresh suit. But it seems to us clear that the defendants knew of this restriction at the time of the contract. The learned Subordinate Judge relies on the fact that the Government Order granting this exemption is dated only the 25th of April, 1922, while the contract was on the 6th of February, 1922 and says the Council had no right to grant the exemption beforehand. We are not concerned here with the question whether the Council had any right to grant this exemption but whether in fact that exemption was known at the time of the contract to the defendants. The learned Subordinate Judge finds that the manner in which this exemption was entered in the resolution book is, suspicious, but we have the letter Exhibit VII-c written by the defendants on the 5th of April, 1922, i.e., only 5 days after the defendants started collecting tolls, to the Municipal Chairman. In that letter they state:

In pursuance of an order of Government, tolls are being levied for cuttle at the Municipal toll-gates in Tanjore, Kumbakonam, Mannargudi and Negapatam, in the Tanjore District, in the Municipal gates in other Districts and in all the Local Fund toll-gates in the Tanjore District. The yield of paddy in the taluks of Nannilam, Negapatam and Tiruturaipundi is very low this year. When we, who have taken a lease at a high rent, think over the probable collections during this festival season, we are led to apprehend much loss.

I therefore solicit orders for the levy of fees, except in the case of local cattle, for all cattle coming from other places as is being done in all either Municipalities. Great loss will be caused to us if an order be not passed to that effect.

I therefore pray that fees may be ordered to be. levied for cattle other than the local ones.

11. There is no hint that the exemption was not known or declared to the parties at the time of the contract. What they state is that such exemption has been refused by the Government in other places and it ought not : to be granted in Tiruvarur, specially in view of the bad season. Again the defendants' agent writes in Exhibit VII (t) repeating that in Tanjore and other Municipalities toll is levied for cattle and saying,

In the taluks of Nannilam, Negapatam, Tiruturaipundi, the produce of paddy is very much less this year. It appears from what was Collected during the Utsavam time and what is being collected up to date that there will be a very great loss. An order must therefore be made for collecting toll for the cattle coming from outside except the local cattle as in all other Municipalities. We who have taken lease for a big amount are likely to incur a heavy loss...

I therefore request that an order may be passed for collecting tax for outside cattle except the local cattle now at least.

12. Here again the claim is not put on any breach of the contract or on the introduction of a fresh term but on what is the practice elsewhere and on the bad season. If the defendants had thought it was contrary to the terms of the contract or was a term newly introduced, they would have certainly said so. It was not till long afterwards in a letter Exhibit VII (m) written on the 5th of September, 1922, that the agent of the 1st defendant wrote:

After the sale was confirmed in our favour we came to understand later on that the Councillors had decided at a meeting that fees should not be levied for cattle. Thereupon we have submitted two petitions to the Municipal Chairman, one on 5th April, 1922, and the other on 19th June, 1922, requesting that, inasmuch as the notice inviting tenders did not mention that fees should not be levied for cattle, the resolution passed at the meeting of the Council should be set aside.

13. It will be seen that the letters of 5th April, 1922 and 19th June, 1922, raised no such contention that the parties were not aware of terms of the contract which were altered at a later meeting of the Council.

14. As regards the other acts of negligence alleged by the defendants against the Municipality, it is unnecessary to discuss them in view of our finding that the contract is not enforceable.

15. With regard to issue 10, we cannot agree with the finding of the learned Subordinate Judge that even if the contract was enforceable the 2nd defendant is not liable under it. The learned Judge says:

The bidder was only the 1st defendant but the 2nd defendant stated subsequently that he was also a partner with the 1st defendant and that his name also should be included as a lessee. Exhibit D is that application and even the Chairman did not pass any orders on it accepting the 2nd defendant as a lessee. Even if the Chairman had done so, it would be invalid since there was no resolution of the Council to that effect. The offer by the 2nd defendant not having been accepted and the bidder having no right to transfer or sub-lease without the sanction of the Council, I have to find that the 2nd defendant cannot be made liable as a joint contractor or joint lessee.

16. Of course on the finding that the contract is not enforceable the 2nd defendant is not liable under it, but neither is the 1st defendant. This is not a case of a transfer or sub-lease as imagined by the Lower Court but a case of a party after his bid has been accepted, representing to the Municipality that he bid on behalf of himself and another person and asking that-such other person should be regarded as a co-contractor. The second party joins in this and pays money on which the Chairman officially 'accepts the amount tendered by both. Throughout both have been representing themselves as contractors who have taken a joint lease. The 2nd defendant we consider is clearly estopped by his action from disputing liability under the contract and his contract is enforceable. Both the parties are agreed before us--and they are willing too--that if the contract is found invalid they should accept a decree on a quantum meruit basis. We do not see any reason why this should not be allowed. Similar relief was allowed in Mahomed Ebrahim Molla v. The Commissioners for the Port of Chittagang I.L.R.(1927) C. 189 where it was held that the Port Commissioners could not sue on the contract. Although accounts have been furnished showing profit and loss, we think that they are not sufficiently complete to enable us to fix the correct figure. We will send the case down for disposal to the Lower Court on these lines, while reversing the decree though agreeing with the Lower Court on the second issue. Parties may adduce fresh evidence oral and documentary before the Lower Court. The appeal having substantially failed in this Court, respondents will recover their costs here from the appellant. Costs in the Lower Court will abide the result of the suit. Court-fee will be refunded.


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