Report No. 13
80. Section 65.-
Conflicting views have been taken as to the meaning of the expression 'discovered to be void'. One class of cases in which this conflict has arisen is that of contracts with municipalities and with Government which do not comply with the requirements of the law prescribing the form in which they have to be executed. The question has been, whether in such cases when contracts were partly or fully executed a claim for restitution under section 65 lay. Courts in India took conflicting views. One line of cases followed the House of Lords decision in Young & Co. v. The Mayor and Corporation of Royal Leamington Spa., (1883) 8 AC 517. That case arose under the Public Health Act which required the contract to be in writing and sealed. The contract had been fully executed by the plaintiff.
The corporation had paid certain sums from time to time but refused to pay other large sums which were the balance claimed by the plaintiff. The House of Lords decided that the want of seal prevented the plaintiffs from recovering the sum claimed. The main ground was that the grant of relief to the plaintiff would have the effect of repealing the Act of Parliament and depriving the rate payers of that protection which Parliament intended to secure for them. The hardship of the decision was recognised by Lord Blackburn. This case was followed in India and the case of Mohori Bibi v. Dharmodas Ghose, 30 Cal, 539 was applied in which the Privy Council had refused to apply section 65 to a minor's agreement.
In the other line of cases, section 65 and sometimes section 70 was held to be applicable. The hardship in England was removed by the repeal of the provisions of the Public Health Act, 1875 and by the enactment of section 266 of the Local Government Act, 1933.1 Messrs. Pollock and Mulla2 found it difficult to appreciate the application of section 65 and section 70 where there was an express statutory prohibition governing the corporation. They realised, however, that 'the above result is not wholly satisfactory; though it may be an accurate statement of the law and a certain sense of incongruity remains'.
The recent decisions in India incline in favour of the applicability of section 65 to such cases. The view which has prevailed in the Calcutta High Court is represented by the decision of Sinha J. in Ram Nagina v. G. G. in Council, AIR 1952 Cal 306, and by the decision3 of a Bench of that court which upheld the view taken by Sinha, J. Sinha, J's decision was followed in Assam in Dharmeshwar v. Union of India, air 1956 Assam 86. In Madras. there has been a current of decisions in favour of this view.4 The Patna High Court has also followed the view of Sinha J.5
1. Chitty; Op. Cit., Vol. I, p. 625
2. Pollock & Mulla; Op. Cit., p. 399.
3. Ranendranath v. Dhuliyan Municipality, AIR 1956 Cal 203.
5. Dominion of India v. Priti Kumar Ghosh, AIR 1958.
A contrary view, it may be noted, has been taken by Mukherjee J. of the Calcutta High Court in the case of Anantha Bandhu v. Dominion of India.
"I cannot persuade myself to believe that an agreement at its very inception in outright disregard of express statute or constitutional provision which renders the agreement unenforceable can be said to be discovered to be void within the meaning of section 65, Contract Act. If that was the intention all that section 65, Contract Act, need have said is "whenever an agreement is void", and not "discovered to be void".
In consonance with the preponderance of opinion we recommend that it should be made clear that section 65 applies to cases where an agreement is void by reason of non-compliance with statutory requirements.
81. Divergent views have been taken on the question whether the expression "discovered to be void" covers an agreement void for an unlawful consideration.1 On a consideration of the whole matter, we have reached the conclusion that section 65 does not apply to agreements which are void under section 24 by reason of an unlawful consideration or object. To such agreements the English rule as embodied in the maxim in pari delicto potion est conditio possidentis and its exceptions should apply. That principle has received statutory recognition in section 84 of the Indian Trusts Act and we have adverted to the rule and its exception later in this report.
1. Cf. Jijibai v. Nagji, 11 Bom 693 and Nathu Khan v. Sewak Koeri, 15 CWN 408 (409).
82. The expression 'discovered to be void' came for interpretation before the Judicial Committee a number of times. In the case of Harnath Kuar v. Inder Bahadur Singh, AIR 1922 PC 403 (405), the Committee observed: "An agreement, therefore, discovered to be void is one discovered to be not enforceable by law, and, on the language of the section, would include an agreement that was void in that sense from its inception as distinct from a contract that becomes void".
In the particular case before them, their Lordships held that the discovery as to the void character of the agreement took place only after the misapprehension as to the 'private rights' of the transferor was realised. Later in the case of Anand Mohan v. Gour Mohan, AIR 1923 PC 189 (191), their Lordships laid down that in the absence of special circumstances to the contrary the "discovery" of the agreement must be held to have been made at the time of the agreement itself. This was reiterated in Hans Raj v. Dehra Dun M.T.Co., AIR 1933 PC 63 (66).
In Nisar Ahmad v. Mohan Manucha, AIR 1940 PC 204, the Judicial Committee applied section 65 to the case of a mortgage which failed by reason of the absence of permission of the Collector under para. 11 of Schedule III of the Civil Procedure Code. It was held that the case was one which fell within the words "discovered to be void" occurring in section 65. Again in 1943 on the same facts the Privy Council1 reiterated the applicability of section 65 and pointed out that in the case of a minor's agreement there is a general incapacity to contract, while para. 11 Schedule III of the Civil Procedure Code imposes on a judgment-debtor only incapacity to transfer property.
1. Mohan Manucha v. Manjur Ahamad, AIR 1943 PC 29 (33).
Though we are anxious to remove expressions which give rise to a conflict of judicial opinion, we do not consider it advisable to do away with the expression "discovered to be void" inasmuch as in particular circumstances, it may be relevant for the purposes of limitation.1
1. Harnath Kaur v. Inder Bhadur, AIR 1922 PC 403 (405).
83. While dealing with section 11 we have already recommended1 that a provision may be made in section 65 to the effect that where an agreement is entered into by a minor falsely representing that he is a major, the agreement will be one within the purview of section 65. At the same time we want to make it clear that section 65 should not have any application to cases of agreements entered into with persons incompetent to contract with full knowledge of their incompetency.
1. Supra, para 37.
84. In our Report on the Specific Relief Act1 while referring to Privy Council case of Satgur Prasad v. Har Narain, AIR 1932 PC 89 (91), we have suggested by way of abundant caution that the principle underlying section 65 of the Contract Act should be expressly made applicable to voidable contracts where a party relies on the voidability of the contract and avoids it. This should be made clear by suitable changes in the section.
1. Ninth Report of the Law Commission, para. 89.