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E.A. Janu Sait Vs. N. Ramaswami Naidu - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported inAIR1923Mad626; 72Ind.Cas.735
AppellantE.A. Janu Sait
RespondentN. Ramaswami Naidu
Cases ReferredIn Bhikanbhai v. Hiralal
Excerpt:
contract act (ix of 1872), sections 23, 24 - rules framed by government to control sale of certain goods in interest of public--agreement to sell in contravention of rules--public policy--money paid under agreement, whether can be recovered--fraud--in pari delicto potior est conditio possidentis, applicability of. - - if the plaintiff was aware of the conditions governing the sale of rice, conditions which had been enacted by government for the good of the country generally, it is obvious that, in entering into this contract in contravention of those conditions, the plaintiff knew, that he was inducing the defendant to sell the rice to him, and that such sale was undoubtedly opposed to public policy, if not actually illegal. no evidence has been let in to show what were the actual.....phillips, j.1. the plaintiff and the defendant are both merchants of negapatarn and the plaintiff entered into a contract for the purchase of rice from the defendant en the terms of exhibits a and ai. at the time when the contract was entered into, namely, july 19, the import of rice was controlled by government and rules were framed in accordance with which alone import and transport of rice was permitted. the defendant obtained a license from government to import certain rice from burma and it was this rice which he agreed to sell to the plaintiff. the nee was delivered to the plaintiff, but, shortly afterwards, 2123 bags were commandeered by government and the plaintiff received only the actual controlled price, whereas he had paid to the defendant a considerably larger sum. the.....
Judgment:

Phillips, J.

1. The plaintiff and the defendant are both merchants of Negapatarn and the plaintiff entered into a contract for the purchase of rice from the defendant en the terms of Exhibits A and Ai. At the time when the contract was entered into, namely, July 19, the import of rice was controlled by Government and rules were framed in accordance with which alone import and transport of rice was permitted. The defendant obtained a license from Government to import certain rice from Burma and it was this rice which he agreed to sell to the plaintiff. The nee was delivered to the plaintiff, but, shortly afterwards, 2123 bags were commandeered by Government and the plaintiff received only the actual controlled price, whereas he had paid to the defendant a considerably larger sum. The balance of 1320 bags had already been re-sold by the plaintiff and Government took no _ action in regard to them. The plaintiff now claims damages for loss that he has sustained by this action on the part of Government and alleges that he sustained this loss owing to the fraudulent representations of the defendant.

2. A question has now been raised in appeal as to whether the plaint contract was not one that was void, as being (1) opposed to public policy and (2) illegal. The question was not raised in the pleadings in the lower Court, but it is evident from the Subordinate Judge's judgment that it was, at any rate, raised at the time of arguments, and when a question of this sort is raised, I think that a Court should' take notice of it, even though it does not appear in the pleadings vide Scott v. Brown (1892) 2 Q.B. 724 : 61 L.J.Q.B. 738 : 4 R. 42 : 67 L.T. 782 : 41 W.R. 116 : 57 J.P. 213. and this case can, I think, be disposed of upon this ground. When the contract was entered into, the defendant, under the terms of his license, Exhibit III, was forbidden to sell this rice to other whole-Sale merchants in the port of entry and he was only allowed to sell to retail dealers in the port of entry who were approved by the Collector of the District. Admittedly, the plaintiff was not one of those approved dealers and he was a wholesale merchant. Thus, these restrictions have been contravened by the sale to the plaintiff. It is contended for the plaintiff that he was not aware of these restrictions, and the lower Court has found in somewhat peculiar language that there is no doubt that defendant was a party in pari delicto so far as his obligations were concerned to the Director of Civil Supplies * * *. But there are no convincing circumstances to show that plaintiff was aware on the date of the suit contract, that defendant was committing a breach of a legal duty by entering into the suit transaction * * * and I am not prepared to hold that both the parties are in pari delicto though one of them is and that is the defendant.' It is unnecessary to discuss here whether a contract would only be void if the plaintiff entered into it, knowing that it was in breach of public policy, or illegal for I think that, in the evidence on record, there is sufficient to establish plaintiff's knowledge.

3. The contract, Exhibit A, reads as follows:--'I have settled price with you at the Controller's rate for the rice coming for me by the Viravu Steamer and marked 'N. K.' If perhaps the Madras Director of Supplies should ask the said bags from me and it I should have to give the bags to him, I shall return to you the money you have given me with one per cent, interest.' Similar conditions appear in the counterpart executed by the plaintiff to the defendant Exhibit Ai. The rates are not specified: in these two documents, but a separate document bearing the same date was written by the defendant to the plaintiff in which the rates of the various kinds of rice are set forth. It is plaintiff's case that these were the agreed rates, he being informed by the defendant that they were the Controller's rates; but the defendant states that these rates were only given by him approximately as he did not know the exact rates fixed by the Controller until the 15th of July. On this point I think it is clear that the plaintiff's case is correct and that the rates were agreed upon as per Exhibit B. The defendant knew that he was not allowed to sell to the plaintiff and naturally would want some higher profit than the four annas a bag allowed to him by Government, and, if he entered into such a contract, he would naturally fix the prices at something higher than the controlled rates. Plaintiff being a big merchant in the place, must have known that he could not purchase rice except by permission from Government and, therefore, he was probably, very willing to pay defendant these higher rates in order to secure the rice; when there was control of rice imports and rice sales set up in Negapatam as in other places, it is impossible to believe that the plaintiff, who was himself a big rice merchant, did not know these facts. The mention in the contract of the possibility of the rice being taken by the Director of Civil Supplies is quite sufficient to put him upon notice of the control and of the various regulations which had been prescribed with reference to the sale of rice The plaintiff's contention that he did not know that the rates in Exhibit B were not controlled rates is somewhat futile, for no man ofreasonable prudence would have entered into such a large contract without taking some steps to ascertain what were the proper rates and it is unlikely that he would have been content with this simple document, Exhibit B. If the plaintiff was aware of the conditions governing the sale of rice, conditions which had been enacted by Government for the good of the country generally, it is obvious that, in entering into this contract in contravention of those conditions, the plaintiff knew, that he was inducing the defendant to sell the rice to him, and that such sale was undoubtedly opposed to public policy, if not actually illegal. No evidence has been let in to show what were the actual Notifications of Government at the time, or whither the license, Exhibit III, was based upon those Notifications, and, therefore, it is perhaps doubtful whether the contract was actually opposed to law, but, when it was in contravention of regulations imposed for the good of the country and the general public, it is clear that the contract was opposed to public policy. Under Sections 23 and 24 of the Contract Act the contract is, therefore, void and the plaintiff can base no claim upon it.

4. It is, however, contended that his action is not based upon the contract but upon the fraud of the defendant; but, even if such fraud had been established and I have held above that I do not think it has been--the plaintiff must have been aware of the conditions governing the sale of rice when he entered into the contract and this plea would still not be good; for, even if the claim is based upon fraud, there can be no claim apart from the contract. When both parties are in pari delicto the maxim in pari delicto potior est conditio possidentis applies and the Courts will not assist the plaintiff to recover in such a case.

5. If it were necessary to do so, I would hold that the payment by the plaintiff of the sum of Rs. 3,000 on the 21st of July to the defendant is proved. The lower Court has, no doubt, found that it is proved, but unfortunately only one of the plaintiff's accounts was translated in that Court and, although plaintiff's witness No. 3 in the witness-box produced the accounts and on reference to them mentioned details, the lower Court has held that; there was no corroborative proof. We have the evidence not only of the plaintiffs but of plaintiff's witness No. 3 as to the payment and it is strongly corroborated by the plaintiff's accounts which there seems to be no reason to distrust His omission to examine two of the defendant's gumastahs to whom the money was paid cannot have much importance, for although they are said to have left defendant's service, one would have expected defendant to examine them to contradict the alleged payment to them. There is also considerable ground for suspecting the truth of the defendant's accounts, but as this point is not necessary for the determination of the appeal, I will not go into this question in detail but merely state that IF consider that the payment of Rs. 3,000 is proved.

6. The plaintiff's suit must, however, fail and this appeal be dismissed, considering defendant's conduct, each party will bear his own costs.

Devadoss, J.

7. The plaintiff appeals against the decree of the Temporary Subordinate Judge of Tanjore who dismissed his suit. The plaintiff's case as disclosed in the plaint is that he contracted with the defend -ant to buy 300 bags of rice at prices noted in Exhibit B; that he incurred certain charges for removing the bags of rice from the wharf to his godown; that a good portion of the rice was commandeered by the Director of Civil Supplies, Madras, and that the sustained loss thereby, and the defendant being guilty of fraud is liable for the loss sustained by him. The defendant's case is that the plaintiff contracted with him to buy imported rice at the rate fixed by the Director of Civil Supplies; that he paid only the price of the rice supplied less a small amount; that he gave delivery at the wharf; that he is not guilty of any fraud, and that he is not liable to make good any loss the plaintiff may have sustained by a portion of the rice sold being commandeered by the Director of Civil Supplies.

8. The main contention urged by the appellant is that a sum of Rs. 3,000 paid by him on 21st July, 1919 was not given credit to in the defendant's books. According to his case he paid a sum of Rs. 48,996 and the defendant admits all the payments but a sum of Rs. 3,000. The question is whether this sum was paid by the plaintiff to the defendant on 21st July 1919. The plaintiff's evidence is that it was paid to the defendant's clerks on the 21st July 1919 in two sums Rs. 1,000 and Rs. 2,000 and he is corroborated by his accounts. The defendant's books do not show the receipt of Rs. 3,000. In order to determine whether the amount was paid by the plaintiff or not, we have to see what the rates at which plaintiff contracted to buy the rice imported by the defendant were. If the contract rates were those mentioned in Exhibit B, the plaintiff's case is rendered very probable. In this connection a few facts have to be remembered. At that time there was rice control in this Presidency. The defendant was given a permit or license by the Director of Civil Supplies, Madras, to import rice from Rangoon and, according to the terms of the license, Exhibit III, he could sell only to licenced dealers at the rates fixed by him, and should not sell to any wholesale merchant in Negapatam. The plaintiff was not a licensed dealer and was not authorised to import rice and he could not buy rice in Negapatam from any licensed dealer as he is a wholesale merchant, and according to the terms of the license granted by the Director a. wholesale merchant could not buy in Negapatam, rice imported by any rice dealer. Therefore, he must have consented to pay a higher price than the Director's price in order to secure a large quantity of rice which he could sell at a considerable profit.

9. The defendant having sold to the plaintiff who is not a licensed dealer in1 contravention of the terms of Exhibit III, the Director of Civil Supplies ordered the forfeiture of the deposit of the Rs. 5,000 made by the defendant and the defendant petitioned the Director as will be seen from Exhibit XII, to reconsider his case and to pass orders cancelling the order of forfeiture by trying to make out that he was not guilty of wilful breach of the conditions of the license. In these circumstances, it is unlikely that he would admit that he sold the rice at the prices mentioned in Exhibit B, His explanation is that Exhibit B gives only tentative prices in order to enable the plaintiff to have the money ready to be paid as soon as the ship bringing the rice arrived in port. Exhibit A is the contract signed by the defendant and Exhibit A is the counter-part signed by the plaintiff If the defendant's case is true, he could very well have mentioned in Exhibit B, that these prices were only tentative prices and the real prices would be those fixed by the Comroler. If his case were true, why was not Exhibit B made a part of Exhibit A or Exhibit Ai? It is oh a separate sheet of paper which could be suppressed if the parties wished. His explanation, therefore, that these prices were only tentative prices cannot be accepted, and from the conduct of the parties it is quite clear that Exhibit B contains the real contract prices as settled between them, for it is unlikely that the plaintiff would have paid a large sum of money, nearly amounting to half a lakh of rupees, without ascertaining what the prices fixed by the Director were. Considerable argument was advanced as regards the state of accounts of the defendant. There is a sum of Rs. 3,000 credited on 21st July 1919 in his book for which he does not give a satisfactory explanation. His evidence on that point is very unsatisfactory and, therefore, I have no hesitation in holding that Rs. 3,000 was paid to him by the plaintiff on the 21st of July 1919.

10. The next point argued is as regards the charge incurred by the plaintiff for removing the bags of rice from the wharf to his godown. The agreement is silent as to the place of delivery. It is not clear why the plaintiff should have paid the charges for removing the bags from the wharf without requiring the defendant to deliver the goods at his godown, or asking him to meet the costs of the removal. There is nothing in the documents to show that the defendant undertook to bear the charges of carting the rice from the wharf to the plaintiff's godown. The plaintiff not being a licensed dealer and knowing he was violating the terms of the license, Exhibit III, he was anxious evidently to remove the bags as soon as they were landed and it is likely that he took delivery at the wharf. There is evidence on the side of the plaintiff that the delivery was to be at the wharf. Whether that was so or not, the plaint ff volunteered the payment of the charges for the removal of the rice from the wharf to his godown and he cannot in law claim them from the defendant.

11. He claims damages on the ground of loss caused by the lice being commandeered by the Director of Civil Supplies, and his being paid a sum not less than that contracted for by him. It is unnecessary to deal with this question at length in the view I take of the questions of law in this case. Two questions arise for consideration in this case: (1) Is the contract entered into by the plaintiff with the defendant legal or not? and (2) if it is illegal, can the plaintiff get back the amount paid by him? the defendant evidently did not plead the illegality of the contract as he was trying to get back from the Director of Civil Supplies the amount of deposit made by him for obtaining the license, Exhibit III, which that officer had directed to be forfeited. It is urged by the appellant that this point was not raised before the lower Court. There is some indication in the judgment of the learned Subordinate Judge that this question was argued before him. Otherwise, I fail to see how he could have referred to Nathu Khan v. Sewak Koeri 9 Ind. Cas. 161 : 15 C.W.N. 408, and distinguished it from the present. Whether the point was specifically raised in the lower Court or not, this Court has to see whether the plaintiff should 'be given any help in getting back the money which he paid under a contract which is illegal, as be no opposed to public policy In Scott v. Brown (1892) 2 Q.B. 724 : 61 L.J.Q.B. 738 : 4 R. 42 : 67 L.T. 782 : 41 W.R. 116 : 57 J.P. 213 the Court of Appeal held that a contract between two parties for the purchase of shares in order to induce other persons to buy shares believing that the shares were selling at a premium when there was no bona fide market for them was an illegal transaction and con d be made the subject of an indictment for conspiracy and no action could be maintained in respect of such agreement to purchase of shares. Lindley, L.J. observed at page 728, 'no Court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal, if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality. It matters not whether the defendant has pleaded illegality or whether he has not. If the evidence adduced by the plaintiff proves the illegality the Court ought no to assist him. If authority is wanted for this proposition, it will be found in the well-known judgment of Lord Mansfield in Holman v. Johnson (1775) 1 Cowp. 341 : 98 E.R. 1170.' The facts appearing in the evidence in this case being clear, namely, that the defendant was not authorised to sell to the plaintiff and that he was not authorised to sell at rates higher than those fixed by the Director of Civil Supplies, and the plaintiff was not a person licensed to buy wholesale at Negapatam controlled rice, I have no hesitation in holding that the contract is an illegal one, as being opposed to public policy. The next question is whether the plaintiff should be helped by the Court in getting back the money paid in execution of an illegal contract. No doubt in this Court the respondent relied upon the illegality of the contract in resisting the appellant's claim. His contention is that he is entitled to get relief on the ground that he dots not seek to enforce the terms of the contract but only to get back money paid by him to the defendant for a consideration which failed. In Javerbhai Jorabhai v. Gordhan Nani 28 Ind. Cas. 442 : 39 B. 358 : 17 Bom. L.R. 259 certain alienations were made in contravention of the Bhagdari and Narwadari Tenures Act and the High Court held that, though the alienations were illegal and void as contravening the terms of the Act, yet the money advanced for the alienation could be recovered. Though at first sight it may appear that 'the case supports the plaintiff's contention, yet, on a close perusal of the judgment, it would be clear that the learned Judges rest their decision on a separate covenant whereby the mortgagor undertook to repay to the plaintiff the amount lent. At page 366* the learned Judges observe: 'But there still remains the question whether the plaintiff is not entitled to recover for breach of a separate covenant contained in the deed of mortgage. That covenant was passed by the defendant-mortgagors in the following terms:--'If there should be any hindrance or obstruction concerning the house, or if the house should be taken out of your possession, then we and our property and our heirs and representatives are liable for any loss you may suffer and for your moneys advanced'.... Here the covenant covers as well the cases where hindrance or obstruction should occur in taking possession as the case where possession, after having once been obtained, is after wards taken away from the purchaser. In the present case there is no separate covenant for the return of any money that may be due to the plaintiff as the difference between the price that might be paid by the Controller of Civil Supplies and the contract price. 'Whether such a contract would be legal or not it is unnecessary to consider as there is none set up in this case. The next case relied upon by the appellant is Mathura Mohan Saha v. Tiamkumar Saha and Chittagong District Board 35 Ind. Cas. 305 : 43 Cri.L.J. 26 : 20 C.W.N. 370, where it was held, that 'where a Corporation receives money or property under an agreement which turns out to be ultra vires or illegal, it is not entitled to retain the money. The obligation to do justice rests upon all persons natural and artificial; if one obtained the money, or property of others, without authority, the law, independently of express contract, will compel restitution or compensation.' In that case there was no performance ox the contract entered into by the' Corporation and the learned Judges held that 'the relief is granted not upon the illegal contract nor according to its terms, but on an implied contract by the Corporation to return or, failing to do that, to make compensation for property or money which it has no right to retain.' In the present case the contract was fully performed by the plaintiff taking delivery of the 300 tons of rice contracted for and he only claims compensation for the difference in price between that paid by him to the defendant and that paid to him by the Director of Civil Supplies. In the first place, there is no covenant by the defendant to make good any loss that might occur to the plaintiff by the rice being commandeered, and in the next, the contract has been fully performed. The plaintiff contracted to buy at the rates mentioned in Inhibit B and paid accordingly. The Director of Civil Supplies commandeered the rice as he was entitled to do and paid the plaintiff its price according to the terms of the license under which the rice was imported. The case might be different if the rice had been commandeered before the plaintiff took delivery, but when once the contract is completed by delivery, it is difficult to understand how the plaintiff could seek relief against the defendant on the ground that the Director of Civil Supplies commandeered the rice from him. He no doubt relies on the alleged fraud of the defendant in not disclosing the contents of Exhibit I by which the Director of Civil Supplies informed the defendant to hold the goods at his disposal as the shipment was under the license granted to him. Granting that Exhibit I was not shown to the plaintiff, he has no reason to complain. Exhibit I does Slot import a new condition which is not to be found in Exhibit III. It cannot be con-tended with any show of reason that the plaintiff was unaware of the contents if Exhibit III. Exhibit III makes it clear that the licensee should hold the quantity imported at the disposal of the Director and the explanation of the clause 'that the whole rice imported on this license must be placed at the disposal of the Government' is, that 'it can only be sold to merchants or dealers selected or approved by the Director of Civil Supplies, or some one authorised by him in this behalf.' That being so, Exhibit I does not import any never them or put any restriction upon the defendant with regard to his dealing with the imported rice, which was not contained in Exhibit III. It is, therefore, not clear how the plaintiff could contend that the defendant is responsible for the loss sustained by him, by the non-disclosure of the contents of Exhibit I. In Srinivasa Aiyar v. Sesha Iyer 41 Ind. Cas. 783 : 41 M. 197 : 6 L.W. 42 : 34 M.L.J. 282, it was held that 'a marriage brokerage agreement is unlawful and void and brokerage paid thereunder is recoverable if the agreement or a substantial part of it is not performed.' Oldfield, J., relies upon Taylor v. Bowers (1876) 1 Q.B. 291 : 45 L.J.Q.B. 163 : 34 L.T. 938 : 24 W.R. 499 and observes, 'the exception to the general rule, based on the absence of any or of any substantial performance, is clearly recognised without reference to the distinction proposed in a case later than the majority of those relied on by the learned Judges, in Taylor v. Bowers (1876) 1 Q.B. 291 : 45 L.J.Q.B. 163 : 34 L.T. 938 : 24 W.R. 499 in which the object of the agreement a fraud on creditors would, if persisted in, have resulted in the frustration of the Insolvency Law.' The learned Judges gave relief to the plaintiff on the ground that the agreement or a substantial portion of it was not performed. In the case of Taylor v. Bowers (1876) 1 Q.B. 291 : 45 L.J.Q.B. 163 : 34 L.T. 938 : 24 W.R. 499, the facts were 'the goods were made over to Alcock for the purpose of defrauding, the plaintiff's creditors. But they were made over by Alcock to the defendant without the plaintiff's authority, and not in furtherance of the fraudulent, purpose for which they had been assigned to him. And while the fraud on the plaintiff's creditors originally contemplated remained wholly unaccomplished, the plaintiff repudiated what, had been done, and claimed to have the goods restored to him, which done, they would have been again available to the creditors.' Cockburn, C.J., held: 'Now it seems to us well established that where money has been paid, or goods delivered, under an unlawful agreement, but there has been no further performance of it, the party paying the money or delivering the goods may repudiate the transaction, and recover back his money or goods.' In the present case, as I have observed, there has been a complete performance of the contract and the case in Srinivasa Aiyar v. Sesha Iyer 41 Ind. Cas. 783 : 41 Ma. 197 : 6 L.W. 42 : 34 M.L.J. 282 does not help the appellant. In Bhikanbhai v. Hiralal 24 Ba. 622 : 2 Bom. L.R. 483 : 12 Ind. Dec. 944 there was a condition in a lease of tolls that the lessee should not sub-let the tolls without the permission of the Collector. The plaintiff, the lessee, sued the defendant, the sub-lessee, for certain moneys due to him under the sub-lease. The defendant contended that the contract was void and no money was recoverable. The learned Judges held that the restriction as regards the sub-lessee was in the interests of revenue and not for the benefit of the public. They observe at page 625: 'The Act imposing tolls is an Act passed for the benefit of the revenue and not an Act for the protection of public morals such as the Abkari and Opium Acts are in this country and the Licensing Acts are in England, and to which different considerations apply.' They gave a decree to the plaintiff on the ground that the defendant was liable to make good the amount due to the plaintiff. But here the rice control was established during War conditions and was continued for the benefit of the public after the War was over on account of the economic conditions prevailing then and it cannot be, therefore, contended that the control was in the interests of revenue and the violation of the rule would not stand in the way of the plaintiff getting relief. It is not suggested for the appellant that the rules under which rice was imported from Rangoon were ultra vires or that the rice control was not under proper statutory provisions. Under the Ordinance, promulgated, during the War and after rewards, rice control was established in various parts of the country and the Director of Civil Supplies, Madras, was authorised to issue permits and licenses and the licensees or permit-holders could only deal according to the terms of the license. The rice control was for the benefit of the public and any violation of the rules is opposed to public policy. It is unnecessary to notice all the cases relied upon by the parties as it is quite clear that the Court should not render its aid for the purpose of helping the plaintiff and get-back money which he paid under a contract, which was opposed to public policy and, therefore, void. In this case, the contract has been fully completed and the plaintiff who seeks relief on the ground of fraud is not entitled to it, as I find on the evidence that he was not deceived as regard? the terms of the license and his conduct in getting rice without a license to buy in Negapatam, was in violation of the rules framed in the interests of the public. This point is fatal to the plaintiff's case and he is entitled to no relief. The defendant's conduct was grossly improper in having sold the rice imported by him under the license granted by the Director of Civil Supplies to an unlicensed person and, therefore, he is not entitled to his costs.

12. The appeal is dismissed and, in the circumstances of the case, both parties should bear their own costs.


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