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TMI Blog1962 (9) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... to uphold the fraud practised in the instant case. 3. I agree with the opinion of my learned brother Jagdish Sahai. Jagdish Sahai, J. 4. I have read the opinion of my brother Dwivedi and agree with his conclusion that the appeal should be dismissed with costs. Inasmuch as my approach to the case is basically different from that of my brother Dwivedi, I have thought it necessary to embody my views in a separate judgment. 5. The facts of the case are as follows: One Sri Chand was the proprietor of the firm Panna Lal Balmukund of Jhansi. Professing to carry on the business of selling and purchasing grain he introduced himself to a registered firm at Jalna in Hyderabad known as firm Jugal Kishore Lachhi Ram (hereinafter referred to as the plaintiffs), of which Lachhi Ram is the managing partner, and offered to send goods to be sold through the agency of the latter to which the plaintiffs agreed. In pursuance of that general arrangement Sri Chand sent two railway receipts by post and simultaneously a Hundi for Rs. 20,000 through the Central Bank of India Limited to the plaintiffs. The plaintiffs, on presentation of the Hundi, declined to pay that much amount on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n similar circumstances, Agarwala and Mulla, JJ. in Rameshwar Swarup v. Surajmal Shyam Sundar AIR1955All676 held that the Receiver was not entitled to the money which belonged to the person who paid it. In V. A. F. O. No. 157 of 1952, Shree Om Sharan Sahaney v. Narotam Das Prem Chand and Brother, decided by Desai, J. (as he then was) and Takru, J., on 10-9-1957, a contrary view was taken. In Sahney's case Desai, J. who delivered the judgment of the Bench took the view that to the facts of that case Section 86 of the Indian Trusts Act did not apply--firstly because the contract of transferring the property was not induced by fraud or mistake and transferring the property was not induced by fraud or mistake and secondly no notice to that effect had been given to the transferee by the transferor. I will advert to these decisions a little later. 7. Admittedly the railway receipts sent by Sri Chand to the plaintiffs did not cover any goods and were forged documents. There is a clear finding of the trial Court to that effect and my brother Dwivedi is also in agreement with that finding Had it been a criminal case there would have been no difficulty in holding Sri Chand guilty of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, 1950 they definitely wanted their money back on the ground that they had been defrauded. From the statement of Lachhi Ram it is clear that on 13th June, 1950, he was informed by the Jhansi Branch of the Central Bank that payment to Sri Chand had been withheld. Section 19 of the Contract Act does not require that an agreement shall be rescinded in a particular form and all that Section 66 provides for is that the rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal. Section 4 of the Contract Act provides that the communication of a revocation is complete as against the person who makes it when it is put into a course of transmission to the person to whom it is made so as to be out of the power of the person who makes it and as against the person to whom it is made, when it comes to his knowledge. In my judgment, the Central Bank was the agent of Sri Chand. The reasons why I have come to that conclusion are set out in a later part of this judgment while dealing with the question of notice under Section 86 of the Indian Trusts Act. Inasmuch as the Central Bank w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could either treat the agreement as void or affirm it. An agreement can be affirmed either by the positive act of declaring it as such or by the passive act of not declaring it void and by purporting to act under it. In other words Whenever one party to a contract has the option of annulling it, the contract is voidable and when he makes use of that option the agreement becomes void . (See Pollock and Mulla: Indian Contract Act, Edn. 6, p. 365). In the case of Muralidhar Chatterjee v. International Film Co. Ltd. the Judicial Committee took this statement of law given by Pollock and Mulla as correct. The reason why under Section 19 an agreement obtained by fraud has been kept voidable at the option of the person-defrauded and not wholly void is obvious. The idea was to put the person defrauded in a better position than he would have been if the agreement was void. It is clear that if an agreement is void the person defrauded cannot insist upon the fraudulent party to perform his part of the contract and the contract would be void both for the fraudulent party as also the defrauded party. I have found nothing in Section 19 on the basis of which it can be contended that even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended in an acquittal. The United Bank paid to Bhuiya the entire sum of. Rs. 38,562-8-0. The dispute arose between the two banks. The Central Bank instituted a suit on the original side of the Calcutta High Court for a declaration that it had acquired the rights of a pledge in respect of the two blocks of shares in two companies. The claim was for recovery of possession of shares and also for damages alleged to have been suffered by the plaintiff Bank by reason of wrongful denial of its title by the United Bank. It is noteworthy that at no stage during the litigation right from the Court of the learned Single Judge to the Supreme Court was it ever disputed that Mukerji did not acquire any legal title to the shares . The position of Mukerji was similar to that of Sri Chand in our case. With regard to his rights the Supreme Court took pains to emphasise that admittedly he had no rights. The dispute was between the two Banks. It was contended by the plaintiff Bank that it had received the shares by way of pledge in good faith and without notice of the defect in the title of Mukerji who had agreed to purchase those shares from Bhuiya and had actual possession of the same with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of S. 41 of the Transfer of property Act, which deals with immovable property. The considerations which led to the enactment of Section 30(2) of the Indian Sale of Goods Act are wholly different from those which led to the enactment of Section 19 of the Indian Contract Act. No considerations of public policy are involved in the enactment of the latter section. As I read Section 19 of the Indian Contract Act, I believe it to mean that the fraudulent party cannot build any rights an a contract obtained by fraud though it is open to the deceived party either to insist that the contract shall be performed or to declare it void. It is only when the deceived party insists on the performance of the contract by the defrauding party that the latter can insist on its rights in the contract and not otherwise. Immediately a contract is rescinded by the defrauded party on the ground of fraud, it is rendered void ab initio, i.e., right from the inception. In, the Judicial Committee while considering the scope of Section 19 of the Contract Act observed as follows : This is certainly so in any case under Section 19; it is enforceable at the option of the party only in the sense that that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. No distinction can therefore, be made in respect of tax liability and any other liability on a plain reading of Section 72 of the Indian Contract Act even though such a distinction has been made in America. (See Sales Tax Officer v. Kanhaiya Lal [1959]1SCR1350 ). That was a case where an amount had been paid to the State as tax in the belief that it was due but ultimately it was held that the tax was illegal and the person who had paid the amount wanted its recovery under Section 72 of the Indian Contract Act. 14. Another line of reasoning also supports the plaintiffs' case. Section 10 of the Indian Contract Act reads as follows : 10. All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. An agreement can be a contract only if it is made with the free consent of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007. In the present case Sri Chand has got possession of the sum of Rs. 15,000/- by committing a criminal offence (Section 420, I. P. C.). No person can confer on himself a legal right to something by acting in a wrongful manner. It is true that no one can take advantage of his own fraud (nul prendra advantage de son tort demesne). Thus no title passed to Sri Chand in respect of this sum of Rs. 15,000/-. It is also elementary that the Receiver would have no title in the money superior to that of Sri Chand. On this ground also the plaintiffs are entitled to the amount in dispute. In following this line of reasoning, I am not cutting across the provisions of Section 37(2) of the Bengal, Agra and Assam Civil Courts Act and am not invoking equity at the cost of law. It is not the scheme of our law to protect a cheat or to recognise his rights in property which he has received fraudulently by committing a criminal offence. I have already said in an earlier part of this judgment that if Sri Chand had been convicted by a criminal Court that Court would have had ample jurisdiction to direct the Bank to pay the sum of Rs. 15,000/- to the plaintiffs and not to Sri Chand or the Receiver un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat at that price on the other. The terms are plain and simple and there is nothing in the contracts which can be said to make them liable to rescission on any ground. The respondent's case is that the fraud which Sri Chand practised on them was to induce them to part with their moneys on contracts which he never had any intention of fulfilling himself and that their contracts were therefore liable to rescission...... The fraud which according to him has been perpetrated on the respondents is something outside and subsequent to the contracts themselves. Sahney's case, F. A. F. O. No. 157 of 1952 is based on its own facts. Whether or not a contract has been induced by fraud or mistake is always a question of fact depending upon the facts of that particular case. That being so, I take the observations made by Desai, J. in Sahney's case as confined to the facts of that case. The trial Court has recorded a categorical finding with which both myself and my learned brother are in agreement, that the railway receipts did not cover any goods and Sri Chand had obtained the sum of Rs. 15,000/- from the plaintiffs by practising fraud. That being so, it must be held that the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Bank (in whatever manner that money was deposited) and that interest now vests in the contesting defendant. Suit for declaration is not legally maintainable. There is no evidence on the record to show that the amount of Rs. 15,000/- realised from the plaintiffs by the Bank was even transferred in the account of Sri Chand. The Official Receiver has rot produced any evidence and Lachhi Ram, who is the solitary witness in the case, has not deposed anything about it. The copies of telegrams which have been filed in the case by the Central Bank also do not prove this fact. Consequently, there is no material on the basis of which it can be held that the amount of Rs. 15,000/- is not lying in the Jhansi Branch of the Central Bank unaccounted for but has been credited to the account of Sri Chand. Till the amount is not actually credited to the account of Sri Chand by the bank, the latter remains the agent of the former. The agency will terminate only after the amount has been credited in the account of Sri Chand for which, as already staled, there is no evidence. The Central Bank would therefore, be deemed to have been the agent of Sri Chand acting in the course of transacting b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that Kabuli could only file a claim and get a pro rata sum was rejected. 21. The only other, question that requires our attention is whether the provisions of Section 28 of the Provincial Insolvency Act (hereinafter referred to as the Insolvency Act) are fatal to this suit. I have already given dates showing that the suit had already been commenced before the adjudication order was passed by the Insolvency Judge. Section 28(2) had no reference to suits or other proceedings actually pending at the date of the order of adjudication. It is settled that adjudication order does not affect suits already filed. (See Re Wray (1887) 36 Ch. D. 138 at p 143 and Re Berry. (1896) 1 Ch 939 at p. 946). It is also well established that if a suit was validly filed and the Court had jurisdiction to entertain it on the date of the institution subsequent events would not lead to the defeat of the suit unless expressly provided to that effect by a legislative enactment. (See Venugopala Reddiar v. Krishnaswami Reddiar). In that case a suit had been filed in a British India Court at a time when Burma had not separated from India. During the pendency of the suit Burma became an independent countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amount of Rs. 15,000/- which, according to my finding, is held in trust can be treated to be a debt. However, it is not necessary to express any final opinion on this question because on the grounds already mentioned above, the suit of the plaintiff was, in my opinion, rightly decreed. In my judgment, the appeal is liable to be dismissed. 22. I would, therefore, dismiss the appeal with costs. S.N. Dwivedi, J. 23. The essential facts of the case are; Sri Chand. the second defendant, was seemingly in the wholesale business of selling foodgrains under the name and style of Pannalal Balmukund at Jhansi. He offered to supply foodgrains to the plaintiff firm at Jalna in Hyderabad. Sometime in June 1950 he sent by post two forged railway receipts to the plaintiff and simultaneously also sent a Hundi for Rs. 20,000/- through the Central Bank of India Ltd., Jhansi branch, for collection from the plaintiff. The plaintiff declined to pay that much amount, which was then reduced to Rs. 15,000/- by him. The plaintiff paid the reduced sum to the Jalna branch of the Central Bank of India Ltd. on June 10, 1950. The Jalna branch transmitted the amount to the Jhansi branch. On r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. The Receiver says that in India the matter is regulated by Section 86 of the Trusts Act and equity cannot override law. It is said that the plaintiff did not give any notice to Sri Chand that the contract was induced by fraud. He points out that a Division Bench of the Court has dissented from the opinion in Rameshwar Swarup's Case AIR1955All676 . That decision is not reported (F. A. F. O. No. 157 of 1953 decided by Desai and Takru, JJ. on 10-9-1957). In that case Desai, J. said that Section 86 would apply only on the fulfilment of two conditions firstly, that the property should have been transferred in pursuance of a contract which is liable to rescission or is induced by fraud or mistake, and, secondly, that the transferee must be given a notice to that effect. As regards the first condition he held that it was not proved that the transferee had practised fraud on the transferor at the time of the formation of the contract; as regards the second condition he found that a notice notifying fraud was not sent to the transferee by the transferor. It was therefore held that S. 86 did not help the transferor against the Receiver. He did not apply equity and dissented fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt day.' The contract thus appears to have been concluded at Jhansi and the 'consideration on either side consisted of a promise to do an act -- a promise to deliver foodgrains by Sri Chand and a promise to pay through hundi by the plaintiff. On either side the consideration was executory. 29. Under Section 17 of the Contract Act fraud means and includes a promise made without any intention of performing it. Under Section 19 of that Act when consent to an agreement is caused by fraud, as here the agreement is a contract voidable at the option of the party whose consent was so caused. The contract between the plaintiff and Sri Chand was accordingly voidable and not void. Authority is all one way for the view that if a buyer purchases and obtains delivery of goods under pretence of a promise to pay but with a preconceived design of never paying for them, the contract for sale of goods is voidable and not void Ferguson v. Carrington (1829) B C 59; Load v. Green (1846) 15 M W 216;. Clough v. London and North Western Ry. Co. (1871) 7 Ex 26: Donaldson v. Farwell (1876) 23 Law Ed 993, Tholasiram v. Duraji 15 Mad LJ 375). And it cannot be otherwise when the victim of fraud is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goods Act, and now title in the goods would pass to a bona fide purchaser for value and without notice of fraud. 32. In my opinion the contract between Sri Chand and the plaintiff is not void but voidable. A voidable contract is binding and efficacious until avoided by the party defrauded either by repudiating it or by obtaining a judicial rescission of it. In view of Sections 66 and 4 of the Contract Act the repudiation to be effective must be communicated to the other party. In this case there is no evidence to show that the plaintiff had repudiated the contract to the knowledge of Sri Chand before July 27, 1950, on which date the application for adjudging him insolvent was made. The contract accordingly stood valid and operative on that date and would pass property in the money to Sri Chand subject of course to what is to be stated later. Oakes v. Turauand and Harding (1867) 2 HL 325, Reese River Silver Mining Co. Ltd. v. Smith (1869) 4 HL 64; United Shoe Machinery Co. of Canada v. Brunet 1909 AC 330. 33. As the contract had not been rescinded, Section 72 of the Contract Act would not apply; nor would equity aid the plaintiff by imposing a constructive trust on Sri Chand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case. We do not know what the law of contract is in various States of the U. S. A., and without any knowledge of that law it would in my opinion not be proper to decide the case, which is primarily, and principally governed by the Contract Act, in the light of a generalised opinion of Mr. Scott. I can see no means of escape from the logic of the Contract Act into the sanctuary of equity. If bankruptcy proceedings had not supervened, who knows the plaintiff might have elected to affirm the contract in spite of fraud and enforced! performance of it. After all under the law the plaintiff had the option to affirm or disaffirm the contract after notice of fraud, and until it was disaffirmed in accordance with law it was valid and binding on the parties. It would create a certain legal relation between the parties under the Contract Act, the equity cannot substitute for that relationship a constructive trust even though the plaintiff had not elected to rescind the contract of July 27, 1950. 36. We have not been referred to any case where a Court has imposed constructive trust on the party guilty of fraud even without rescission of the contract. (1869) 4 HL 82, is a case of a will al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts in the Receiver? 38. The interest passing under the contract to Sri Chand was defeasible at the option of the plaintiff. He could obliterate the contract by electing to rescind it. Such election could be made either by repudiating the contract to the knowledge of Sri Chand (which was not done) or by filing a suit repudiating the contract (which was done after July 27, 1950). It may be observed that it is neither pleaded nor proved by the receiver that the plaintiff had, by his conduct or otherwise, forfeited the option to rescind the contract after July 27, 1950. When the election to rescind has been exercised, the contract ceases to operate and the property reverts in the transferor who is defrauded. It is in this sense that Sri Chand had only a defeasible interest to the money. And the Receiver took only his defeasible interest, for his interest could not be higher than Sri Chand's. Thus the interest that vested in the Receiver was defeasible and may be defeated by the result of the suit of the plaintiff. As we have found that the contract was induced by fraud, the plaintiff is entitled to a declaration that he is the owner of the money deposited in the Bank. 39. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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