MANU/KE/0069/1990

Equivalent/Neutral Citation: AIR1990Ker324, 1990(1)KLJ244

IN THE HIGH COURT OF KERALA

A.S. No. 120 of 1981
Decided On: 09.01.1990
Sundara Gownder Vs. Balachandran
Hon'ble Judges/Coram:
M.M. Pareed Pillay, J.
Counsels:
For Appellant/Petitioner/Plaintiff: P. Santhalingam, Adv.
For Respondents/Defendant: P.N.K. Achan, Adv.
Case Note:
Contract - Realisation of amount - Suit for realisation of amount decreed -
Hence, present appeal - Held, Section 65 of the Contract Act, 1872 had no
application where the contract was void from its inception and the Plaintiff
was aware of it - In such a case it can never be held that the agreement was
discovered to be void at a later stage - Correct legal position was that when a
contract was entered into between parties to circumvent any statutory
provision it was not a case of contract "becoming" or of being "discovered to
be" void - Certainly it would not be a case coming within the purview of
Section 65 of the Contract Act, 1872 - Sub-Judge was not justified in holding
that in view of Section 65 of the Contract Act, 1872 Plaintiff was entitled to
realise the amount - Suit dismissed - Appeal allowed.
JUDGMENT
M.M. Pareed Pillay, J.
1. Defendant is the appellant. Plaintiff filed the suit for realisation of Rs. 22,080/- and
interest thereon on the strength of Ext. A1. The case of the plaintiff is that he an Abkari
Contractor from 1973-74 onwards was not in a position to participate in the auction for
1977-78 on account of the statutory bar that a defaulter to the Toddy Welfare Fund is
not eligible to participate in the auction and to circumvent it he reached an agreement
with defendant that Shop Nos. 17, 19 and 20 out of the 28 shops bid by the defendant
will be transferred to him with the permission of the authorities and that he paid Rs.
22,080/- to the defendant on 1-3-1977 immediately after the auction and the defendant
failed to perform his part of the agreement. Defence was total denial of the agreement.
The learned Sub Judge decreed the suit finding that the plaintiff is entitled to the suit
claim.
2 . Learned counsel for the appellant-defendant submitted that the Sub Judge was not
justified in decreeing the suit having found that Ext. A1 has not been proved to have
been made by the defendant and in view of the several inconsistencies and
improbabilities in the evidence of the witnesses. He also contended that even if the
entire plaintiff's case is assumed to be true still the plaintiff cannot succeed in the suit
as the agreement is opposed to public policy and Abkari Shops (Disposal in Auction)

09-11-2023 (Page 1 of 4) www.manupatra.com Melbourne Law School

Rules.
3 . Though P.W. 6 stated that he saw P.W. 2 giving the defendant the amount, he did
not say anything about the defendant handing over Ext.A1 slip to P.W. 2. P.W. 2 stated
that defendant gave him Ext.A1 when he handed over the amount as directed by the
plaintiff. Evidence of P.Ws. 2 and 3 is attacked mainly on the ground that they were not
present when the auction was held in the Town Hall. The names of P.Ws. 2 and 3 do not
find a place in the list of persons in Ext.X14. As Ext. X14 does not show the names of
P.Ws. 2 and 3, it is a positive circumstance to be reckoned with and hold that their
presence in the Town Hall is open to serious1 doubt:
4 . The learned Sub Judge held that as Ext. A1 is not proved to be signed by the
defendant especially when he has denied it plaintiff should have proved its authenticity
by verifying it by an expert and as that has not been done plaintiff can only depend
upon the veracity of the testimony of his witnesses. As there is no evidence that Ext. A1
was written by the defendant and as the evidence of P.Ws. 2 and 3 is open to serious
doubt, there is considerable force in the defence contention that plaintiff has not
substantiated his case set up in the plaint.
5. Counsel for the defendant next contended that at any rate plaintiff cannot realise the
amount as the object of the agreement was intended to defeat the provisions of law.
Section 23 of the Indian Contract Act provides that if the consideration or object of an
agreement is forbidden by law; or is of such a nature that, if permitted, it would defeat
the provisions of any law, or is fraudulent; or involves or implies injury to the person or
property of another; or the Court regards it as immoral, or opposed to public policy, the
consideration or object of an agreement is said to be unlawful and every agreement of
which the object or consideration is unlawful is void. The averments in the plaint
unequivocally show that the plaintiff was aware of the legal hurdle in his taking part in
the auction and that was the reason why he wanted the defendant's help to circumvent
the provisions of law. If that be so, the agreement is void and the plaintiff cannot base
his claim on it.
6. Section 10 of the Contract Act makes it clear that all agreements are contracts if they
are made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object. So valid contract must stem from lawful
consideration and with lawful object. Section 23 expatiates as to what considerations
and objects are lawful and what not. Consideration or object of an agreement is lawful
unless it is forbidden by law, or is fraudulent or involves or implies injury to the person
or property of another. Also if the Court regards the consideration or object immoral or
opposed to public policy, it will not be enforced. If the consideration or object of an
agreement is intended to defeat the provisions of any law, the consideration or object of
an agreement will be unlawful and such agreement is void. Section 23 makes the
position very clear.
7 . In paragraph 1 of the plaint it is the admitted case of the plaintiff that he is a
defaulter to Toddy Welfare Fund. Rule 5(4A) of Abkari Shops (Disposal in Auction)
Rules interdicts any defaulter to the Toddy Worker's Welfare Fund from participating in
any auction for toddy shops unless he produces from the Welfare Fund Inspector a
certificate to the effect that he has remitted before the date of auction the arrears of
contributions payable up to the 31st day of December of the preceding year. Having
been fully aware of the statutory bar that he cannot participate in the auction he entered
into agreement with the defendant. This agreement can only be viewed as one with the
object of defeating the provisions of law. As the object of the agreement patently comes

09-11-2023 (Page 2 of 4) www.manupatra.com Melbourne Law School

within the mischief of Section 23, the agreement cannot be but void. Any action to
realise the amount pursuant to void agreement cannot be entertained by a court of law.
8 . The maxim in pari delicto potior est conditio possidentis has its basis on the
principles of public policy that the plaintiff who has paid money or handed over
property pursuant to an illegal or immoral contract cannot recover it as the Courts will
not assist an illegal transaction in any manner. This is true of a case as the present one
where the object of the agreement was definitely to defeat the provisions of the Rules.
Hence plaintiff cannot maintain an action to realise the amount which was given to the
defendant with the object of circumventing Rule 5(4A) of the Abkari Shops (Disposal in
Auction) Rules. In this context it is useful to refer to Krishna Menon v. Narayana Ayyar,
MANU/KE/0014/1962 : AIR 1962 Ker 21 (FB), where this Court held that money due
under the agreement could not be realised as the contract was in contravention of the
Cochin Abkari Act. In the above case A agreed to transfer his licence for the foreign
liquor tavern in consideration of certain amount in favour of B who was to do the
business from the date of the agreement and sanction of the Commissioner under
Cochin Abkari Act was not obtained. The Full Bench of this Court held that though there
was no express provision in the Cochin Abkari Act (1 of 1077) making contracts in
contravention of the Abkari Act void, the agreement in question being calculated to
defeat the object of the Cochin Abkari Act (Section 15) was void under Section 24 of the
Cochin Abkari Act, corresponding to Section 23 of the Indian Contract Act and A could
not claim money due under the agreement.
9 . There are exceptions to the maxim that the Courts will not assist in enforcing an
agreement, the object of which is hit by Section 23 of the Contract Act. They are:--
(1) where illegal purpose has not yet been substantially carried into effect
before action is sought to recover money paid or goods delivered in furtherance
of it,
(2) where plaintiff is not in pari delicto with the defendant,
(3) where the plaintiff does not have to rely on the illegality to make out his
claim.
None of these exceptions applies to the case in hand as the pleadings show threadbare
that the agreement was entered into between the parties with the sole object of
defeating Rule 5(4A) of the Abkari Shops (Disposal in Auction) Rules.
10. As the agreement of which the object was unlawful being opposed to a statutory
provision, plaintiff cannot claim relief under Section 65 of the Contract Act. Section 65
envisages the principle of restitution after benefit has been received and the agreement
is later discovered to be void. The section is based on the doctrine of restitutio in
integrum. It does not make a new contract between the parties but only provides for
restitution of the advantage taken by a party under the contract. But in a case where the
plaintiff was aware of the illegal object of the agreement he cannot invoke Section 65 to
his aid. The plaintiff is not entitled to claim any relief under Section 65 as there was no
occasion for him to have been under any kind of ignorance of Rule 5(4A). It is not a
case where plaintiff became aware of the void object of the agreement subsequently. As
ignorance of law is no excuse, it cannot be held that plaintiff was not actually aware of
Rule 5(4A). Of course, Section 65 can be invoked in a case where the contract is void
from its inception but the parties or at least the plaintiff laboured under a bona fide
mistake and the contract is later discovered to be void. In such a case plaintiff is
entitled to get back his money or property. But Section 65 has no application where the

09-11-2023 (Page 3 of 4) www.manupatra.com Melbourne Law School

contract is void from its inception and the plaintiff was aware of it. In such a case it can
never be held that the agreement was discovered to be void at a later stage. The correct
legal position is that when a contract is entered into between parties to circumvent any
statutory provision it is not a case of contract "becoming" or of being "discovered to be"
void. Certainly it will not be a case coming within the purview of Section 65.
11. The Sub-Judge was not justified in holding that in view of Section 65 plaintiff is
entitled to realise the amount. As the object of the agreement was unlawful, plaintiff
cannot enforce it in the Court.
For the reasons stated above, the judgment and decree of the trial Court are set aside.
The suit stands dismissed. The Appeal is allowed with no order as to costs.
© Manupatra Information Solutions Pvt. Ltd.

09-11-2023 (Page 4 of 4) www.manupatra.com Melbourne Law School