2022 (7) TMI 1545 - HC - Indian Laws

Jurisdiction of Court to pass an order directing the Income Tax authority to make an investigation over the transactions between the parties to be unconscionable and opposed to public policy - recovery of money lent and advanced by the plaintiff to the defendant - HELD THAT - In a recent judgment the Apex Court in PASL Wind Solutions Pvt. Ltd. 2021 (4) TMI 1056 - SUPREME COURT accepted the principles on public policy laid down in Central Inland Water Transport Corporation 1986 (4) TMI 271 - SUPREME COURT and held that it is capable of being modified and/or varied and may be expanded depending upon the public conscience, public good and the public interest and, therefore, is not a rigid principles solely based on the common law or the precedents in past. It is inconceivable that the Court would remain a mute spectator where the contract between the parties is a harmful thing, having harmful tendencies, having ramification on the interest of the welfare state in the realm of a freedom of contract. The concept of public policies broadly is founded on public good or public interest and in the changing times may extend it to any transaction which affects the public at large. It is sometimes regarded as an unruly horse and the Judges remained on a slippery road, yet had a firm footing in a patent case of injury to a public at large. It is no longer res integra that Court should seldom exercise the inherent powers enshrined under Section 151 of the Code when there is a specific provision contained in the Code yet sometimes the Court for securing the ends of justice i.e. ex-debito justitiae may invoke such power necessitated by circumstances. Ordinarily, the Court decides the cause pleaded in the respective pleadings and the reliefs claimed therein, yet it has not brindled the power of the Court after noticing the special facts in passing an order under the public policy to secure the interest of the welfare state. There are no infirmity and/or illegality in the impugned order - The appeal is dismissed.

Summary

Issues Involved:
1. Competence and jurisdiction of the Court to direct the Income Tax authority to investigate transactions between parties in a civil suit for recovery of money.
2. Applicability and scope of public policy principles in civil suits.
3. Exercise of inherent powers under Section 151 of the Code of Civil Procedure.

Detailed Analysis:

1. Competence and Jurisdiction of the Court:
The primary issue is whether the Court can order the Income Tax authority to investigate transactions between the parties in a civil suit for the recovery of money lent. The plaintiff advanced Rs. 65 lakhs to the defendant, repayable with 12% interest per annum. The defendant argued that the transaction was not real but an accommodated entry or "Jamma Kharji," implying it was fraudulent and fictitious. The Trial Court, upon noticing these startling facts, directed the Central Board of Direct Taxes to investigate the monetary dealings and submit a report. The Court's competence and jurisdiction to pass such directions were challenged, but it was held that the Court could activate the process of law and direct investigations when it perceives an attempt to evade tax and convert illegal money into legal money.

2. Applicability and Scope of Public Policy Principles:
The plaintiff's counsel argued that public policy principles should not be expanded beyond procedural law and judicial precedents. Public policy, as per Section 23 of the Contract Act, can only be invoked in cases of breach of common law. The Court, however, emphasized that public policy is dynamic and can be expanded to address issues affecting the public interest and welfare state. The Court referred to several judgments, including Gherulal Parakh vs. Mahadeo Das Maiya, Central Inland Water Transport Corporation Ltd. vs. Brojo Nath Ganguly, and PASL Wind Solutions Pvt. Ltd. vs. GE Power Conversion India Pvt. Ltd., to highlight that public policy principles are not static and can be modified to address new challenges. The Court held that contracts with hidden illegal objectives, such as tax evasion, could be scrutinized under public policy principles.

3. Exercise of Inherent Powers under Section 151 of the Code of Civil Procedure:
The Court acknowledged that inherent powers under Section 151 of the Code of Civil Procedure should not override substantive rights or be used to invade private rights. However, it also noted that these powers could be invoked to secure the ends of justice and address special circumstances. The Court emphasized that while it generally decides cases based on pleadings and reliefs claimed, it can exercise inherent powers to address issues impacting public welfare and state interests. The Court found no illegality in the Trial Court's order directing an investigation, as it was necessary to address potential tax evasion and its impact on public policy.

Conclusion:
The appeal was dismissed, and the Court upheld the Trial Court's order directing an investigation by the Central Board of Direct Taxes. The Court emphasized that public policy principles could be expanded to address issues affecting public interest and that inherent powers could be exercised to secure justice and address special circumstances. The prayer for a certificate for appeal to the Supreme Court was refused, as the Court did not find the case to involve a substantial question of law of general importance.