Himachal Pradesh High Court

Vikas Sharma vs . Hemant Sharma And Anr. on 2 September, 2024

Vikas Sharma vs. Hemant Sharma and anr.

Civil Suit No. 22 of 2023 Order Reserved on: 05.08.2024

02.09.2024 Present: Mr. K.D. Sood, Senior Advocate with Mr. Neeraj Sharma, Advocate, for the applicant/plaintiff.

Mr. R.K. Bawa, Senior Advocate, with Mr. Nimish Gupta, Advocate, for the non-applicants/

defendants.

OMP No. 164 of 2023

The applicant/plaintiff has filed the present

application to seek interim directions. It has been asserted

that the applicant/plaintiff filed a civil suit seeking the

recovery of ₹3,97,75,000/- with interest @ 12% per annum

from the date of the filing of the suit till realization and

damages of ₹50,00,000/-. The applicant/plaintiff had

executed a sale deed. The non-applicants/defendants did not

pay the entire sale consideration. They had undertaken to

pay the sale consideration after the execution of the sale

deed. The applicant/plaintiff executed the sale deed but non-

applicants/defendants failed to pay the balance amount.

They can sell, transfer, alienate or create charges over the

suit property. Therefore, the application seeking an

injunction for restraining the non-applicants/defendants

from alienating the suit property, creating any charge on the

same.

2. The application is opposed by filing a reply by non-

applicant/defendant No.1 taking preliminary objections

regarding lack of maintainability, the General Power of

Attorney dated 09.06.2022 having been revoked by the actual

owner vide revocation deed dated 10.10.2022 and the

applicant/plaintiff having not come to the Court with clean

hands. The contents of the application were denied on

merits. It was asserted that the entire sale consideration was

paid at the time of the execution of the sale deed. The

applicant/plaintiff has not sought the relief of cancellation of

the sale deed and he cannot claim the relief of injunction.

Hence, it was prayed that the present application be

dismissed.

3. A separate reply was filed by

non-applicant/defendant No.2 taking almost similar pleas as

were taken by the non-applicant/defendant no. 1 and praying

that the present application be dismissed.

4. I have heard Mr. K.D. Sood learned Senior Counsel

assisted by Mr Neeraj Sharma, learned counsel for the

applicant/plaintiff and Mr R.K. Bawa, learned Senior Counsel

assisted by Mr Nimish Gupta, learned counsel for the non-

applicants/defendants.

5. Mr. K.D. Sood, learned Senior Counsel for the

applicant/plaintiff submitted that the applicant/plaintiff

executed a sale deed in favour of the

non-applicants/defendants for a consideration of

₹8,60,00,000/- out of which an amount of ₹4,44,25,000/-

+ ₹18,00,000/- has been paid to the non-applicants/

defendants. An amount of ₹3,97,75,000/- (₹ 8,60,00,000 -

₹4,62,25,000/-) remains to be paid to the

applicant/plaintiff. The applicant/plaintiff is an unpaid

seller and entitled to the balance sale consideration as per

Section 55 (4)(b) of the Transfer of Property Act. He is

entitled to the creation of the charge upon the property sold

by him, therefore, the present application be allowed and

the non-applicants/defendants be restrained from

alienating the property or creating any charge over the same

to protect the rights of the plaintiff.

6. Mr. R.K. Bawa, learned Senior Counsel for the non-

applicants/defendants submitted that the applicant/

plaintiff is claiming the ownership based on a General

Power of Attorney executed in his favour by the original

owner. The General Power of Attorney does not confer any

right upon a person. The right is only conferred by a

registered sale deed. He relied upon the judgments of

Hon'ble Supreme Court in Suraj Lamp and Industries Private

Limited versus State of Haryana and Anr., 2012 (1) SCC 656,

Ghanshyam Sarda versus Sashikant Jha, 2017 (1) SCC 599,

Balram Singh versus Kelo Devi in Civil Appeal No. 6733 of 2022

decided on 23.09.2022, Shakil Ahmed versus Syed Akhlaq

Hussain, 2023 INSC 1016 and M/s Paul Rubber Industries

Private Limited versus Amit Chand Mitra in SLP (Civil) No.

15774 of 2022 decided on 25.09.2023 in support of his

submission. He further submitted that the

applicant/plaintiff is merely an agent holding Power of

Attorney on behalf of the original owner and is not entitled

to enforce the contract so executed by him. Hence, he

prayed that the present application be dismissed.

7. I have given considerable thought to the

submissions made at the bar and have gone through the

records carefully.

8. The plaintiffs specifically asserted in Para 4 of the

agreement that the original owner-Vipin Khanna was

willing to sell the suit property and the applicant/plaintiff

was willing to purchase the same; hence, an agreement to

sell was executed between the applicant/plaintiff and Vipin

Khanna. The applicant/plaintiff paid the entire sale

consideration and Vipin Khanna executed a General Power

of Attorney in favour of the applicant/plaintiff instead of

executing rthe sale deed. He authorized the

applicant/plaintiff to look after, supervise, manage and

control the property and to execute various deeds and do

various acts. Thus, it is apparent from the averments of the

plaint that the General Power of Attorney (GPA) instead of a

regular sale deed was executed in favour of the

applicant/plaintiff after receiving the whole sale

consideration. It was laid down by Hon'ble Supreme Court

in Suraj Lamp & Industries (P) Ltd. (2) v. State of Haryana,

(2012) 1 SCC 656: (2012) 1 SCC (Civ) 351: (2012) 340 ITR 1: 2011

SCC OnLine SC 1360 that the General Power of Attorney

cannot be a substitute for the regular sale deed. It does not

convey any title nor it creates any interest in the immovable

property. Transactions like GPA sales are invalid. It was

observed at page 667:

"Conclusion

23. Therefore, an SA/GPA/will transaction does not convey any title nor create any interest in an immovable

.

property. The observations by the Delhi High Court in Asha M. Jain v. Canara Bank [(2001) 94 DLT 841], that the "concept of power-of-attorney sales has been

recognised as a mode of transaction" when dealing with transactions by way of SA/GPA/will are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/will transactions are

some kind of a recognised or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognise or accept SA/GPA/will transactions as concluded transfers, as

contrasted from an agreement to transfer, are not good

law.

24. We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Transactions of the nature

of "GPA sales" or "SA/GPA/will transfers" do not convey title and do not amount to transfer, nor can they be recognised or a valid mode of transfer of immovable

property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they

neither convey title nor create any interest in an immovable property. They cannot be recognised as deeds of title, except

to the limited extent of Section 53-A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in municipal or revenue records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to the transfer of leasehold property. A lease can be validly transferred only under a registered assignment of lease. It is time that an end is put to the pernicious practice of SA/GPA/will transactions known as GPA sales.

25. It has been submitted that making a declaration that GPA sales and SA/GPA/will transfers are not legally valid modes of transfer is likely to create hardship for a large number of persons who have entered into such transactions and they should be given sufficient time to regularise the transactions by obtaining deeds of conveyance. It is also submitted that this decision

should be made applicable prospectively to avoid hardship.

.

26. We have merely drawn attention to and reiterated the well-settled legal position that SA/GPA/will transactions are not "transfers" or "sales" and that such transactions

cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreements of sale. Nothing prevents the affected parties from getting registered deeds of conveyance to complete

their title. The said "SA/GPA/will transactions" may also be used to obtain specific performance or to defend possession under Section 53-A of the TP Act. If they are entered before this day, they may be relied upon to

apply for regularisation of allotments/leases by

development authorities. We make it clear that if the documents relating to "SA/GPA/will transactions" have been accepted/acted upon by DDA or other developmental authorities or by the municipal or

Revenue Authorities to effect mutation, they need not be disturbed, merely on account of this decision.

27. We make it clear that our observations are not intended to in any way affect the validity of sale

agreements and powers of attorney executed in genuine transactions. For example, a person may give a power of attorney to his spouse, son, daughter, brother, sister or

relative to manage his affairs or to execute a deed of conveyance. A person may enter into a development agreement with a land developer or builder for developing the land either by forming plots or by constructing apartment buildings and in that behalf execute an agreement of sale and grant a power of attorney empowering the developer to execute agreements of sale or conveyances in regard to individual plots of land or undivided shares in the land relating to apartments in favour of prospective purchasers. In several States, the execution of such development agreements and powers of attorney are already regulated by law and subjected to specific stamp duty. Our observations regarding "SA/GPA/will transactions" are not intended to apply to such bona fide/genuine transactions." (emphasis supplied)

9. Therefore, the applicant/plaintiff cannot

claim any right on the basis of the General Power of

Attorney as per the binding precedent of the Hon'ble

Supreme Court of India.

10. The applicant/plaintiff further stated in Para

11 of the plaint that the defendants did not mention the

complete sale consideration in the sale deed to avoid stamp

duty and assured to pay the balance amount after the

execution of the sale deed in their favour. It is apparent

from the averments made by the applicant/plaintiff in the

plaint, that the sale deed was not executed for the actual

consideration but for a reduced consideration to avoid the

payment of the stamp duty.

11. Chapter VII of the Indian Stamp Act, 1899

deals with criminal offences and procedures. Section 62 of

the Act provides that any person executing or signing a

document otherwise than as a witness any instrument

chargeable with duty without the same being duly stamped

shall be punishable with a fine. Similarly, Section 27 of the

Stamp Act provides that the consideration and all other

circumstances affecting the chargeability of any

instrument with duty, shall be fully and truly set forth

therein, and S. 64 makes the omission to comply with the

provisions of S. 27 penal and punishable. Thus, the

legislature has made the execution or signing of an

instrument chargeable to the stamp duty an offence when

adequate stamp duty has not been paid on the instrument.

In other words, the signing or the execution of the

instrument chargeable to the stamp duty without payment

of the adequate stamp duty is forbidden by law.

12. Section 23 of the Contract Act makes an

agreement, which is forbidden by law or which would

defeat the provision of any law or which involves injury to a

person or property of another void. It was laid down by

Allahabad High Court in Ram Sewak v. Ram Charan, 1981 SCC

OnLine All 806: AIR 1982 All 177: (1982) 8 ALR (SUM 36) 52,

that where the parties had concealed the income to avoid

the payment of the income tax, such an agreement cannot

be enforced by the Court. It was observed:

"5...[I]n view of the admission of the parties that they had been keeping a double set of account for evading payment of income-tax and sales tax and that they had in fact evaded payment of taxes, the matter may be brought to the notice of the Income-tax and Sales Tax Authorities for such action as they may deem proper. The judgment of the lower appellate Court is dated 9th Sept., 1969. I do not know the result if any, of the direction made by the lower appellate Court for

reporting the case to the Tax Authorities. But when I

.

read the judgment I felt that this is one of those cases

where the Court should have refused to entertain the suit on the ground of public policy, as it involves directing the recovery of an amount found to be due to either party as a

share of the profits which had been deliberately concealed by the parties from the books of account in order to evade the payment of taxes. No Court can countenance a deliberate evasion of the tax laws of the country, and to

lend the aid of the Court for recovering an amount which had been deliberately kept concealed by the parties in order to evade payment of the taxes due thereon would amount

to aiding and abetment of the evasion of the laws by the Court itself. It was the case of the parties that all the

transactions were not entered in the books of account in order to evade payment of income tax as well as sales tax. It is highly probable that the entire amount of concealed

profits represented the amount of sales tax evaded on the transactions of sale. I say so because the incidence of sales tax is in many cases much higher than the

margin of profit of a dealer on a transaction of sale.

6. This is as far as the Court's conscience is concerned.

In strict law S. 23 of the Contract Act provides that 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 ... .. .. ... the Court regards it as immoral, or opposed to public policy, "and" in each of these cases, 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."

It is trite that a void agreement cannot be enforced by a Court.

7. In the present case the parties had agreed to carry on business in partnership. There was no illegality in that. The carrying on of business for earning profit was also lawful. But the parties further agreed in the course of carrying on their business that they would conceal some part of their business activity and would not enter certain items in the books of account maintained by them, in order

to evade payment of Income-tax and sales tax. It needs no

showing that evasion of income tax and sales tax is

forbidden by law and at any rate defeats the provision of the laws under which income tax and sales tax are levied and collected. The object of the agreement to carry on

business in partnership was to earn profits. The further object was that part of the profits will be earned in such a way or retained in such a manner as to evade the payment of taxes. That was forbidden by and defeated the provisions

of the tax laws. Therefore, the object of the agreement was, in part at least forbidden by law and such as defeated the provisions of law. Further, it cannot be disputed that

evasion of taxes is opposed to public policy.

8. What is permitted is lawful avoidance of taxes, or in other words to so arrange one's affairs as to reduce the incidence of taxes to the minimum leviable under the law, but an evasion of the law, or falsification of accounts

or deliberate non-payment 6f taxes though due or attempt to avoid payment of taxes by violating the tax laws is certainly not permitted. I have, therefore, not the slightest

hesitation in holding that the agreement between the parties in so far as it related to earning of concealed profits,

or concealment of the profits earned by falsification of accounts, was wholly void and no Court could enforce the

agreement by directing an enquiry into the amount, or the destination, of the concealed profits in order to enforce the recovery of the share therein of one party from another." (Emphasis supplied)

13. It was held in Chandra Sreenivasa Rao vs.

Korrapati Raja Rama Mohana Rao And Another, 1951 SCC

OnLine Mad 131: (1951) 64 LW 770: (1951) 2 Mad LJ 264 :

AIR 1952 Mad 579 : 1951 MWN 653, that where the object of

the agreement was criminal (performance of the child

marriage), the Court shall not enforce such an

agreement. It was observed:

"I agree with the opinion expressed by the learned

.

Judge, viz., that the lending of money to a guardian to

celebrate the marriage of her child is really for the purpose of enabling her to commit an act which is not only prohibited, but is made an offence under the Act.

Now coming back to S. 23 of the Indian Contract Act, it will be seen that the purpose of borrowing in this case is of such a nature that if permitted it would defeat the provisions of the Child Marriage Restraint Act of 1929,

for the money was lent to enable the guardian to celebrate the marriage contrary to the provisions of Ss. 5 and 6 of the Act.

The borrowing is also opposed to public policy. Public policy is rather an elastic term and its connotation may

vary with the social structure of a state, The limits and domain of the public policy are stated by Pollock and Mulla at page 155 in their book, Indian Contract Act, as

follows:

"It is now understood that the doctrine of public policy will not be extended beyond the classes of

cases already covered by it. (a) No Court can invent a new head of public policy; (b) it has even

been stated in the House of Lords that public policy is always an unsafe and treacherous ground

for legal decisions; (c) this does not affect the application of the doctrine of public policy to new cases within its recognised bounds; (d) but the test is always whether the enforcement of the impugned contract lends or is likely to lead to injurious action."

14. In the present case also, the parties had

executed an instrument to avoid the payment of the

stamp duty. As per the own showing of the

applicant/plaintiff, the parties had not paid the proper

stamp duty and the applicant/plaintiff had put the

signatures on a document on which adequate stamp duty

was not paid; therefore, prima facie, he had committed an

offence punishable under Section 62 & 64 and any

agreement to enforce the commission of the offence has

to be considered as void by the Courts as per Section 23 of

the Contract Act. Further, the purpose of the sale deed

was to defeat the provisions of Indian Stamp Act. Thus,

the plaintiff will not be prima facie entitled to recover the

balance amount.

15. It was submitted that the plaintiff was not to

pay the stamp duty and the defendant was to pay the

stamp duty, therefore, the plaintiff cannot be penalized.

This submission cannot be accepted. The plaintiff had

put the signatures on a document which he knew was not

property stamped, therefore, he was a party to an

illegality. It was laid down by the Hon'ble Supreme Court

in Loop Telecom & Trading Ltd. v. Union of India, (2022) 6

SCC 762: (2022) 3 SCC (Cri) 733: (2022) 3 SCC (Civ) 563:

2022 SCC OnLine SC 260 that where both the parties were

party to an illegal agreement, the restitution cannot be

claimed. It was observed:

"60. Section 65 of the Contract Act recognises the principle of restitution, particularly when a contract is discovered to be or becomes void. It stipulates thus:

"65. Obligation of person who has received advantage under void agreement, or contract that becomes void.

.

--When 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."

61. In Pollock & Mulla's seminal treatise on the Contract

Act [R. Yashod Vardhan and Chitra Narayan, Pollock & Mulla's Indian Contract and Specific Relief Acts, Vol. I (16th Edn., LexisNexis).], it has been noted that Section 65 does not operate in derogation of the maxim in pari

delicto potior est conditio possidentis:

"Section 65 is not in derogation of the common law maxims ex dolo malo non oritur actio and in pari delicto potior est conditio possidentis; and

only those cases as are not covered by these maxims can attract the application of the provision of Section 65 on the footing that

when an agreement in its inception was not void and it was not hit by the maxims but is

discovered to be void subsequently, right to restitution of the advantage received under such agreement is secured on equitable

consideration. The section has been held not to apply where both parties knew of the illegality at the time the agreement was made and were in pari delicto."

Thus, the application of Section 65 of the Contract Act, 1872 has to be limited to those cases where the party claiming restitution itself was not in pari delicto.

62. In Principles of Law of Restitution [ Graham Virgo, Principles of the Law of Restitution (3rd Edn., OUP) p. 710.], it has been noted that all claims for restitution are subject to a defence of illegality. The genesis of this defence is in the legal maxim ex turpi causa non oritur actio (no action can arise from a bad cause). A court will not assist those who aim to perpetuate illegality. This rule was initially recognised by the House of Lords in its decision in Holman v. Johnson [Holman v. Johnson, (1775)

1 Cowp 341 at p. 343: 98 ER 1120 at p. 1121]. Lord Mansfield held: (ER p. 1121)

"The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times very ill in the mouth of the

defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the

real justice, as between him and, the plaintiff, by accident, if I may so. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his

cause of action upon an immoral or illegal act. If,

from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be

assisted." (emphasis supplied)

63. The Principles of Law of Restitution subsequently

notes that in pari delicto potior est conditio possidentis is a way of qualifying the ex turpi causa defence [ Graham

Virgo, The Principles of the Law of Restitution (3rd Edn., OUP) p. 711.]:

"This in pari delicto principle enables the court

to analyse the particular circumstances of the case to determine whether the claimant is less responsible for the illegality than the defendant, for then, as between the claimant and the defendant, the just result is that the claimant should not be denied relief, since the parties are not in pari delicto. But where the claimant is more responsible for the illegality or the parties are considered to be equally responsible, the in pari delicto principle applies and restitution will be denied." (emphasis supplied)

64. Thus, when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto.

65. In the decision of the UK Supreme Court in Patel v. Mirza [Patel v. Mirza, (2016) 3 WLR 399: 2016

.

UKSC 42], Lord Sumption, JSC has succinctly explained the nature of the inquiry to determine whether a party is in pari delicto: (WLR pp. 466-67, paras 241-43)

"241. To the principle that a person may not rely on his own illegal act in support of his claim, there are significant exceptions, which are as old as the principle itself and generally

inherent in it. These are broadly summed up in the proposition that the illegality principle is available only where the parties were in pari delicto in relation to the illegal act. This principle

must not be misunderstood. It does not authorise a

general inquiry into their relative blameworthiness. The question is whether they were [Ed. : The word between two asterisks has been emphasised in the original as

well.] legally [Ed. : The word between two asterisks has been emphasised in the original as well.] on the same footing. The case law

discloses two main categories of cases where the law regards the parties as not being in pari

delicto, but both are based on the same principle.

242. One comprises cases in which the claimant's participation in the illegal act is treated as involuntary: for example, it may have been brought about by fraud, undue influence or duress on the part of the defendant who seeks to invoke the defence. ...

243. The other category comprises cases in which the application of the illegality principle would be inconsistent with the rule of law which makes the act illegal. The paradigm case is a rule of law intended to protect persons such as the plaintiff against exploitation by the likes of the defendant. Such a rule will commonly require the plaintiff to have a remedy notwithstanding that he participated in its breach." emphasis supplied)

Thus, in determining a claim of restitution, the claiming party's legal footing in relation to the illegal

.

act (and in comparison, to the defendant) must be understood. Unless the party claiming restitution participated in the illegal act involuntarily or the rule

of law offers them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail.

66. The position in India is similar to that of Kuju

Collieries Ltd. v. Jharkhand Mines Ltd. [Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533], where a Bench of three learned Judges of this Court relied on a judgment [Budhulal v. Deccan Banking Co., 1954 SCC

OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101] of a

five-Judge Bench of the then Hyderabad High Court. While construing the provisions of Section 65, this Court held: (Kuju Collieries case [Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533], SCC pp.

536-37, para 8) "8. A Full Bench of five Judges of the Hyderabad

High Court in Budhulal v. Deccan Banking Co. [Budhulal v. Deccan Banking Co., 1954 SCC

OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101] speaking through our Brother, Jaganmohan Reddy, J. as he then was, referred

with approval to these observations [Harnath Kuar v. Indar Bahadur Singh, 1922 SCC OnLine PC 64] of the Privy Council. They then went on to refer to the observations of Pollock and Mulla in their treatise on Indian Contract and Specific Relief Acts, 7th Edn. to the effect that Section 65 of the Contract Act, 1872 does not apply to agreements which are void under Section 24 by reason of an unlawful consideration or object and there being no other provision in the Act under which money paid for an unlawful purpose may be recovered back, an analogy of English law will be the best guide. They then referred to the reasoning of the learned authors that if the view of the Privy Council is right, namely, that "agreements discovered to be void" apply to all agreements which are ab initio void including

agreements based on unlawful consideration, it follows that the person who has paid money or

.

transferred property to another for an illegal purpose can recover it back from the transferee under this section even if the illegal purpose is

carried into execution and both the transferor and transferee are in pari delicto. The Bench then proceeded to observe: (Budhulal case [Budhulal v. Deccan Banking Co., 1954 SCC

OnLine Hyd 187: AIR 1955 Hyd 69: ILR 1955 Hyd 101], SCC OnLine Hyd paras 33-36) '33. In our opinion, the view of the learned authors is neither supported by any of the

subsequent Privy Council decisions nor is it

consistent with the natural meaning to be given to the provisions of Section 65. The section using the words "when an agreement is discovered to be void" means

nothing more nor less than when the plaintiff comes to know or finds out that the agreement is void. The word "discovery"

would imply the pre-existence of something which is subsequently found out and it may

be observed that Section 66, Hyderabad Contract Act makes the knowledge (Ilm) of

the agreement being void as one of the pre- requisites for restitution and is used in the sense of an agreement being discovered to be void. If knowledge is an essential requisite even an agreement ab initio void can be discovered to be void subsequently. There may be cases where parties enter into an agreement honestly thinking that it is a perfectly legal agreement and where one of them sues the other or wants the other to act on it, it is then that he may discover it to be void. There is nothing specific in Section 65 of the Contract Act, 1872 or its corresponding section of the Hyderabad Contract Act to make it inapplicable to such cases.

34. A person who, however, gives money for an unlawful purpose knowing it to be so, or in

such circumstances that knowledge of illegality or unlawfulness can as a finding of fact be imputed to him, the agreement under which

the payment is made cannot on his part be said to be discovered to be void. The criticism is that if the aforesaid view is right then a person who has paid money or transferred property to

another for an illegal purpose can recover it back from the transferee under this section even if the illegal purpose is carried into execution, notwithstanding the fact that both

the transferor and transferee are in pari delicto,

in our view, overlooks the fact that the courts do not assist a person who comes with unclean hands. In such cases, the defendant possesses an advantage over the plaintiff -- in pari

delicto potior est conditio defendentio.

35. Section 84 of the Trusts Act, 1882, however, has made an exception in a case:

"84. Transfer for illegal purposes. --

Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into

execution, or the transferor is not as guilty as the transferee or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor."

36. This specific provision made by the legislature cannot be taken advantage of in derogation of the principle that Section 65, Contract Act, is inapplicable where the object of the agreement was illegal to the knowledge of both parties at the time it was made. In such a case the agreement would be void ab initio and there would be no room for the subsequent discovery of that fact.'

We consider that this criticism as well as the view taken by the Bench is justified. It has rightly

pointed out that if both the transferor and transferee are in pari delicto the courts do not assist them." (emphasis supplied)

While upholding the view of the Hyderabad High Court, this Court held "it [the Full Bench [Budhulal v. Deccan Banking Co., 1954 SCC OnLine Hyd 187: AIR 1955 Hyd 69:

ILR 1955 Hyd 101] of the Hyderabad High Court] has

rightly pointed out that if both the transferor and transferee are in pari delicto the courts do not assist them".

67. In an earlier decision of this Court in Immani Appa Rao v. Gollapalli Ramalingamurthi [Immani Appa

Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370] ("Immani Appa Rao"), a three-Judge Bench held that where both the parties before the Court

are confederates in the fraud, the Court must lean in favour of the approach which would be less injurious to public interest. P.B. Gajendragadkar, J. (as he then

was), speaking for the Court, held: (AIR p. 375, para 12) "12. Reported decisions bearing on this

question show that consideration of this problem often gives rise to what may be described as a battle of legal maxims. The

appellants emphasised that the doctrine which is pre-eminently applicable to the present case is ex dolo malo non orituractio or ex turpi causa non oritur actio. In other words, they contended that the right of action cannot arise out of fraud or out of transgression of law; and according to them it is necessary in such a case that possession should rest where it lies in pari delicto potior est conditio possidentis; where each party is equally in fraud the law favours him who is actually in possession, or where both parties are equally guilty the estate will lie where it falls. On the other hand, Respondent 1 argues that the proper maxim to apply is nemo allegans suam turpitudinum audiendum est, whoever has first to plead turpitudinum should fail; that party fails who first has to allege fraud

in which he participated. In other words, the principle invoked by Respondent 1 is that a man

.

cannot plead his own fraud. In deciding the question as to which maxim should govern the present case it is necessary to recall what Lord

Wright, M.R. observed about these maxims in Berg v. Sadler [Berg v. Sadler, (1937) 2 KB 158 (CA)], KB at p. 162. Referring to the maxim ex turpi causa non oritur actio Lord Wright

observed that : (KB p. 162) '... This [maxim], though veiled in the dignity of learned language, is a statement of a principle of great importance; but like

most maxims, it is much too vague and

much too general to admit of application without a careful consideration of the circumstances and of the various definite rules which have been laid down by the

authorities.' Therefore, in deciding the question raised in

the present appeal it would be necessary for us to consider carefully the true scope and effect

of the maxims pressed into service by the rival parties, and to enquire which of the maxims would be relevant and applicable in the

circumstances of the case. It is common ground that the approach of the Court in determining the present dispute must be conditioned solely by considerations of public policy. Which principle would be more conducive to, and more consistent with, public interest, that is the crux of the matter. To put it differently, having regard to the fact that both the parties before the Court are confederates in the fraud, which approach would be less injurious to the public interest. Whichever approach is adopted one party would succeed and the other would fail, and so it is necessary to enquire as to which party's success would be less injurious to the public interest." (emphasis supplied)

68. The principle which was enunciated in the judgment in Immani Appa Rao [Immani Appa Rao v. Gollapalli

Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370] has been more recently applied in a decision of a three-

Judge Bench of this Court in Narayanamma v. Govindappa [Narayanamma v. Govind appa, (2019) 19 SCC 42: (2020) 4 SCC (Civ) 363]. The Court

held: (Narayanamma case [Narayanamma v. Govindappa, (2019) 19 SCC 42 : (2020) 4 SCC (Civ) 363], SCC p. 59, para

28) "28. Now, let us apply the other test laid down

in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370]. At the cost of repetition, both parties are common participators in the

illegality. In such a situation, the balance of

justice would tilt in whose favour is the question. As held in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370], if the decree is

granted in favour of the plaintiff on the basis of an illegal agreement which is hit by a statute, it will be rendering an active assistance of the

court in enforcing an agreement which is contrary to law. As against this, if the balance is

tilted towards the defendants, no doubt that they would stand to benefit even in spite of

their predecessor-in-title committing an illegality. However, what the court would be doing is only rendering assistance which is purely of a passive character. As held by Gajendragadkar, J. in Immani Appa Rao [Immani Appa Rao v. Gollapalli Ramalingamurthi, (1962) 3 SCR 739: AIR 1962 SC 370], the first course would be clearly and patently inconsistent with the public interest whereas, the latter course is lesser injurious to the public interest than the former."

69. Hence, in adjudicating a claim of restitution under Section 65 of the Contract Act, the court must determine the illegality which caused the contract to become void and the role the party claiming restitution has played in it. If the party claiming restitution was equally or more responsible for the illegality (in

comparison to the defendant), there shall be no cause for restitution. This has to be determined by the facts

of each case.

16. Thus, the applicant/plaintiff cannot prima

facie claim the amount from the

non-applicants/defendants and his plea that he is

entitled to a charge on the suit property is not acceptable.

17. r A perusal of the sale deed shows that the

applicant/plaintiff had executed the same as a General

Power of Attorney of the Vipin Khanna. He had also put

his signatures as a General Power of Attorney. Thus, the

plaintiff had acted as an agent of the owner. Section 230

of the Contract Act provides that in the absence of any

contract, an agent cannot personally enforce contracts

entered into by him on behalf of his principal nor he is

personally bound by them. Therefore, the agent cannot

enforce any agreement executed by him on behalf of the

principal.

18. It was submitted that the Agreement to Sell

and the General Power of Authority authorized the

applicant/plaintiff to use the property in a manner, in

which he liked and execute the sale deeds. This

agreement was entered into between the plaintiff and the

original owner. It was laid down by the Bombay High

Court in Mackinnon, Mackenzie & Co. v. Lang, Moir & Co.,

1881 SCC OnLine Bom 40: ILR (1881) 5 Bom 584: ID (1880-

1882) 5 Bom 385, that where the agreement shows that it

was executed on behalf of the principal, the agent cannot

sue or be sued in his own name. It was observed:

"The result seems to be that if the contract made by a person who is an agent is worded so as, when taken as a whole, to convey to the other contracting party the notion that the

agent is contracting in that character and that he is the

mouthpiece through which the principal speaks, he cannot sue or be sued on the contract. In the present case, Messrs. Mackinnon, Mackenzie & Co. say they make the agreement "as agents" for the owners of the steamer

Oakdale. No case has as yet apparently decided that this would be enough to exclude their personal responsibility and the corresponding right to sue. In

this charter party, however, there is more than this. It contains a clause by which the owners undertake to

receive the cargo "on being paid freight" at the rate afterwards specified. If the agents intended to contract a

personal liability, this engagement would have been differently expressed. It would have been said "which they engage to receive on being paid or on the owners being paid", As the contract stands, I think Mackinnon & Co. have clearly indicated that they are acting as agents and that the contract is "entered into by them on behalf of principals," i.e., the owners of the Oakdale, They speak from the first as agents; the owners are to receive the cargo; the owners are to be paid the freight; and the effect of these facts is not done away with by their afterwards signing their own name simply. Apart from technical considerations and from predilections derived from cases, the idea conveyed is distinctly that they are contracting, not for themselves, but on behalf of principals indicated, though not named.

xxxxxx

On the first issue, I think, inconvenient as it may be,

.

that the plaintiffs are not entitled to maintain this suit. I

dismiss the suit with costs." (Emphasis supplied)

19. Similarly, Calcutta High Court held in Jaytee

Exports v. Natvar Parekh Industries Ltd., 2001 SCC OnLine

Cal 230: AIR 2001 Cal 150: (2001) 3 Arb LR 519 : (2002) 1 RAJ

160 that where the document does not mention that

agent would be bound by the contract, it will not fall

within the definition of the contract to the contrary. It

was observed:

"13. From the Bill of Lading, it is apparent that the said

document was issued by defendant No. 1 as an agent of respondent No. 4, who is named in the document itself. There is no contract to the effect that the agent would

be bound by the contract. Thus unless it is shown that there is a contract to that effect to bind the agent by the

contract entered into by it on behalf of its named principal, the agent cannot be bound by it."

20. Hence, the agreement entered between the

principal and the agent will not fall within the purview of

a contract to the contrary. (please also see 1979 (83) Cal

WN 75).

21. The General Power of Attorney nowhere

mentions that the plaintiff will be able to act individually

rather it mentions in the closing lines that the principal

agreed to ratify and confirm all acts done by the Attorney

and it would be treated as a principal was present

personally. Thus, the principal never intended to

authorize the General Power of Attorney to act in his own

name by virtue of the General Power of Attorney executed