P L D 1957 Dacca 233 (PLP)

RAHMAN, J.‑

This appeal by the plaintiff is against the decision of the 1st Additional District Judge, Dacca reversing the decision of the Subordinate Judge, Additional Court, Dacca passed in Money Suit No. 9 of 1951. The suit out of which this appeal arises was a suit for recovery of money advanced on a cheque. The plaintiff's case, as made out in the plaint, was that the plaintiff and the defendant were both Private Limited Companies carrying on the business of doing all kinds of electric jobs as, also supplying electric material; that the defendant Company sometimes took supplies of electric goods from the plaintiff Company and sometimes took money also in cash from the plaintiff Company; that, in the course of such transactions, the defendant Company took an advance of Rs. 2,500 by crossed cheque No.41683, dated the 14th of May 1943, drawn upon the Pioneer Bank, Dacca, promising to repay the same by the end of 1943 and that on the 4th of August 1943, the defendant Company repaid Rs. 500 against the aforesaid loan but failed and neglected to make any further payment. It may be mentioned here that in this suit another sum of Rs. 111‑6‑0 was also claimed as the price of goods supplied but not paid for by the defendant Company. At the trial, however, this claim was given up. The defendant Company contested the suit and, amongst others, pleaded that the plaintiff Company and the defendant Company had a secret agreement under which they had agreed that whichever of them secured a contract the same would be carried out jointly and the profits thereof would be shared equally and that the sum of Rs. 2,500 was paid to the defendant Company by the plaintiff Company as its share of the profits in respect of the contract for the electric installation work done at the Jagannath Hall, Dacca, which also was, in pursuance of the aforesaid agreement, carried out jointly by the plaintiff and the defendant Com pany. The defendant Company also set out in its written state ment the particulars of various other contracts said to have been similarly executed jointly by the plaintiff and the defendant Company from even prior to the date of the alleged loan of Rs. 2,

500. The defendant Company further denied that the said sum was advanced to them as a loan and asserted that the story of the loan was an absolute myth. With regard to the payment of Rs. 500, the defendant Company's case was that this was a payment on account of materials and labour supplied by the plaintiff to the defendant Company oh various dates and that the same had been duly acknowledged as such by the plaintiff Company under the signature of its Managing Agent. In support of its case, the plaintiff Company examined its Managing Director‑cum‑sole Proprietor of its Managing Agent, a firm by the name of P. K. Basak & Company, and one other Witness a mistry in their employ, who was said to have worked at the Jagannath Hall, as also filed some documents, being Exhs.1 to

4. Of these exhibits, Exh. 1 was an entry in a rough Jama Kharach book, dated the 13th Baisakh 135) B. S., showing a debit entry of Rs. 2,500 against the name of the defendant Company. Similarly, Exh.1 (a) was an entry in the same Jama Kharach book, dated the 18th of Sraban 1350 B. S., showing a credit item of Rs. 500 said to have been received from the defendant Company. No further detail was given in these entries, nor was it mentioned therein that these were a loan and repayment of a loan. Apart from these, the other exhibits consisted of various balance‑sheets of the plaintiff Company, its Articles of Association and a minute book. None of these had any direct bearing on the issues in the suit nor did any one of these disclose or contain any particulars to show that the said sum of Rs. 2,500 was a loan. As against this the defendant Company examined its Managing Director, Babu Hemanta Kumar Ghosh, and two mistries who were said to have worked at the Jagannath Hall. One of these was an employee, at the relevant time, of the plaintiff Company and was, at the time of giving his evidence, working with a firm in Barisal. In addition to this oral evid ence, a large number of documents were also filed to show that the plaintiff company had, in fact, entered into and carried out various contracts jointly. Although the plaintiff's case in the plaint was that the loan was to the defendant Company, in the evidence the plaintiff Company made out the story that it was the Manag ing Director of the defendant Company who used to borrow monies from the plaintiff Company on behalf of and for the benefit of the defendant Company. The trial Court took the view that there was not an iota of evidence to show that the two Companies entered into any such agreement that they would jointly undertake contract works. In coming to this view, the trial Court seemed to have' been of the opinion that the alleged secret agreement set up by the defendant Company was an unholy combination to cheat the Government and was thus against public policy and therefore, void under section 23 of the Contract At and hence should not be believed. Having come to the View, upon the above ground, that the defendant's story should not be accepted, the trial Court accepted the plaintiff's case and passed a decree in full for the amount claimed by the plaintiff Company with costs and interest at the rate of 6 per cent. by way of compensation. The lower appellate Court, however, reversed this decree after considering the evidence adduced both on behalf of the plaintiff Company and defendant Company. It came to the conclusion that apart from the ipse dixit of the plaintiff's witness No. 1, Babu Prasanna Kumar Basak, the Managing Director of the plaintiff Company and the sole proprietor of its Managing Agent, there was no other evidence to show that the transaction set up by the plaintiff Company was, in fact, a loan, although, on the admission of the said witness himself, these were documents which, if produced, would have shown for what purpose the said sum of Rs. 2,500 was given to the defendant Company. The lower appellate Court pointed out that although the said witness himself stated in his examina tion that it was his practice to enter on the counter‑foil of cheques the purpose for which the payments were being made by cheques, yet, he did not produce that counter‑foil before the Court. Apart from this, the lower appellate Court was also of the opinion that the trial Court had rejected a very material piece of evidence on flimsy grounds, namely, an endorsement in one of the account books, Exh. A, filed on behalf of the defendant Company, which showed that the sum of Rs. 500 had, in fact, been acknowledged to be in payment of materials supplied by the plaintiff Company to the defendant Company and which was admittedly signed by the said Managing Director, Babu P. K. Basak. It con sidered that the ground given by the trial Court for disbeliev ing this endorsement, namely, that the revenue stamp below the said endorsement did not bear the signature of the plaintiff Company, was not a valid ground as it was admitted that the signature by the side of the said revenue stamp was of the plaintiff Company's Managing Director himself. Upon this analysis of the evidence, the lower appellate Court came to the finding that mere proof of payment of a sum of money by cheque was not sufficient by itself to prove that the payment was, in fact, a loan. The lower appellate Court next went on to consider the defence case and the evidence adduced on behalf of the defendant Company and after a careful examination of all the exhibits, which included the tenders of both the plaintiff and the defendant Company, said to have been submitted for this particular contract to do the installation works at the Jagannath Hall and which were all produced from the custody and possession of the defendant Company, came to the view that the defendant's case had been fully proved and found, as a question of fact, that there was a joint contract, as alleged, between the plaintiff and the defendant Company. Having come to this conclusion, the lower appellate Court took the view that whether the agreement alleged by the defendant Company and found to have been established by the evidence was legal or illegal did not make any material difference for the purpose of deciding this case, for, in either view of the matter, the plaintiff Company would fail. If the agreement was legal, then it clearly disproved the plaintiff's case of the alleged loan. On the other hand, if it was illegal, the plaintiff Company was not entitled to enforce such an illegal contract and to sue to recover the sum of Rs. 2,500 paid in pursuance of that illegal contract. Mr. Nandi, the learned Advocate for the appellant, has argued various points before us. The first of the points urged by him is that the lower appellate Court was clearly wrong in not holding that if the agreement alleged by the defendant Company was illegal and hit by the provisions of section 23 of the Contract Act, then the defendant Company should not have been allowed to raise this as a defence or to adduce evidence in support of it. We must say that this is an astounding proposition of law, for, if this be so, then however illegal a contract, the plaintiff would always be in the happy position of being able to enforce that contract, because, according to the above proposition of law, the defendant would always be debarred from pleading the illegality by way of defence or adducing any evidence to show that the contract was illegal, and, therefore, not enforceable. Of course, no authority was cited in support of this contention, and indeed we doubt, that such authority can exist, for the statutory provisions of law make it abundantly clear that this conten tion is wholly incorrect. Section 2(g) of the Contract Act provides that an agreement not enforceable by law is said to be void. It follows, therefore, that a contract which is void is not enforceable in law. Again, the provisions of Order 6, rule 8 and Order 8, rule 2 of the Code of Civil Procedure make it clear that an illegality must be specifically pleaded in the pleading of the parties, and if it is not so pleaded, it may not be allowed to be raised later. There is, therefore, no sub stance in this contention. The next point urged by the learned Advocate is that the judgment of the lower appellate Court is not a proper judgment in reversal, for, it has not definitely considered or reversed a finding of the trial Court to the effect that, " Admittedly, without resolution of the Directors of either Company, none can enter into joint contract with the other. Admittedly there was no resolution for the alleged joint contract." Mr. Nandi's contention is that because the lower appel late Court says that: "In the present case it is not our look‑out to consider the legality or illegality of the contract but we are con cerned only with legality of the particular item of money and to consider whether it is a loan or profit," the lower appellate Court has not considered whether the alleged contract could be legally entered into either under the Contract Act or under the Companies Act. He maintains that, as under the Companies Act no valid contract could be formed without a resolution was proved, it should, at any rate, have been held that the alleged contract could not beset up. We have firstly to point out that it is not quite correct to say that this aspect was not at all considered by the lower appellate Court, because, we find in the judgment of the lower appellate Court the following comment: "The learned Subordinate Judge said that there was no resolution by either Company for joint work. So he rejected the plea of joint work. But the fact remains that they worked together. It is not unnatural that there should be such combination on mutual understanding for higher profit, though it may be illegal but not unnatural." Apart from this, with regard to the question of validity under the Companies Act, it is to be observed that the learned Advocate does not say that the defendant Company could not enter into such a contract or could not authorise its Directors, either specifically or generally by its Articles of Association, to enter into such contracts but what he actually says is that unless a resolution showing the authority is produced, the contract cannot be held to be valid. Mr. Bose, the learned Advocate for the respondent, points out that this is not the law. All that persons who are strangers to the Company, dealing with a Company, are fixed with the knowledge of the contents of the Articles of Associ ation; but they are not concerned with what has been said to be the internal management of the Company ; for they are entitled to assume the regularity of all internal acts of the Company. It is, therefore, not correct to say that in each case persons dealing with a Company must further satisfy themselves that even if clearly the power could have been given by the Articles of Association of the Company to do that thing, that, in fact, such power was properly given. There is abundant authority for the proposition that persons dealing with Directors or Managing Directors of a Company are not called upon to enquire whether the Directors have been validly appointed or whether there is a specific resolution authorizing them to do a particular act, if it is clear from the Articles of Association of the Company that they could have been authorised to do the said act. It is not necessary here to enter into any elaborate discussion on this point but if authorities are needed, reference may be made to the case of In Re Asiatic Banking Corporation (1869, 4 Chancery Appeal Cases 252), where it was held that a third person dealing with the Directors of a Company could not be affected by the bye‑laws of the Company framed under powers given by the Articles of Association, unless it was proved that such person knew of the existence of the said bye‑laws. Similarly, in the case of Ram Buran Singh v. Mufassil Bank Ltd. (A I R 1925 All. 206), Kanahiya Lal, J. observed at page 208 as follows: "All persons dealing with a Company must ascertain the limitation imposed by the Articles of Association, but they are not bound to draw any direct or obvious inferences from the provisions they find there, nor is there any obligation cast upon them to see that such Directors are properly appointed or that they have acted exactly in accordance with the manner prescribed therein. . . . .a third party who deals with the Directors or with the Managers acting under those powers, however irregularly, is protected if he acts in good faith in his dealing with them." It is thus clear that if in the present case the defen dant Company could under its Articles of Association authorise a Managing Director to enter into contracts, then a person entering into a contract with the Company through its Managing Director was entitled to assume that the Managing Director had been properly vested with such authority. Therefore, in .the present case, unless the contrary was shown, the Court was also entitled to assume that the Managing Director had the necessary authority to enter into this contract, particularly as the plaintiff Company did not challenge that the Articles of Association did give the Company power to vest its Directors or Managing Directors with authority to enter into contracts. It is significant that although this question has been argued before us with some emphasis, neither were the Articles of Association of the defendant called for by the plaintiff Company nor was any specific issue raised at the trial with regard to the authority of the Managing Director of the defendant Company to enter into this contract. The only issue which has any bearing on this point and to which Mr. Nandi has referred us is issue No. 5 which is in these terms: "Was there any agreement between the plaintiff and the defendant to execute jointly a contract for the renewal of the electric installation of J. N. Hall Buildings in occupation of 62/1. G. H. under M. E. S, G E, Dacca, to sharp the profit or loss equally? If so, has there been any adjustment of any amount between the parties?" This clearly shows that the issue itself contemplated that there could be such an agreement, and, therefore, wanted it to be determined as to whether, if there was an agreement, it has been duly adjusted. In view, therefore, of the reasons mentioned above, we do not think that there is any substance in This contention of the learned Advocate either. As regards the question of validity under the Con tract Act, it may be that the lower appellate Court has not, in the passage referred to by the learned Advocate and quoted earlier in this judgment, expressed itself very happily but what it meant was that if the existence of the agreement alleged by the defendant was established, then the question as to whether it was legal or not or as to whether it has been properly entered into by a duly‑authorised person or not, was not very material for the purposes of this suit, which was not a suit to enforce the said agreement, because, on the establishment of such an agreement, the plaintiff's story of the loan itself must fail. With this view, we are entirely in agreement, and, in our opinion too, the main question that had to be determined in this case was as to whether such an agreement was, in fact, made or not, and since the lower appellate Court has come to a clear finding that there was such an agreement and decided this question ,as a question of fact, after considering all the points raised by the trial Court, we do not think that we can say that this is not a proper judgment of reversal or that the said finding is not warranted upon the evidence on record. We cannot help observing here that the remark of the lower appellate Court that the trial Court was obsessed with the idea that the agreement alleged by the defendant Company was an unholy combination to cheat the Govern ment and, therefore, against public policy was more than justified. Had it not been for this obsession, the trial Court would not have dealt with this suit in the manner in which it has done. It started off by considering the defence case and opined that it could not be believed, firstly, because no resolution of the defendant Company had been proved to show that the Managing Director was specifically empowered to enter into the agreement in question and, secondly, because the agreement was void under section 23 of the Contract Act on account of its being opposed to public policy. Next, it conveniently got over the various defence exhibits filed to show the existence of several joint contract works obtained by the parties by saying that since one of the said contracts was not ultimately performed, another was only partly per formed and a third was performed after the date of the alleged loan sought to be established in this suit by the plaintiff Company, therefore, the existence itself of such joint contracts was clearly disproved. Upon this curious process of reason ing, the trial Court finally concluded that there was not an iota of evidence to show that the two Companies had entered into any such agreement in the present case and then went on to hold, without discussing the plaintiff's evidence, that the plaintiff's case had been established. We cannot but deprecate this practice, rather frequent of late in the subordinate Courts, of allowing the plaintiff to succeed upon the weakness of his adversary's case. It must be remembered that the plaintiff's case must stand or fall upon its own strength. Lastly, the learned Advocate sought to argue that even if such an agreement was hit by the provisions of section 23 of the Contract Act, yet the lower appellate Court should have held that the plaintiff Company way entitled to recover the money paid in pursuance of the said alleged illegal contract on the basis of money paid and sought to be recovered as on the failure of the consideration. In support of this contention he sought to rely on the case of Somu Pillai v. The Municipal council, Mayavaram (I L R 28 Mad. 52Q), where although a contract entered into between the plaintiff and the Municipality for the object of creating a monopoly and giving to the plaintiff the sole right for selling meat in a market was held to be void as against public policy, it was held that the plaintiff was entitled to recover the sum of Rs. 150 which he had paid to the Municipality as consideration for the said agreement. With regard to this, the learned Advocate, of course, did not specify under which particular statutory provision he sought to claim the recovery of the money, but, presum ably, this contention of his is based on the provisions of section 65 of the Contract Act where under, when an agree ment is discovered to be void, any person who has received an advantage under such an agreement is bound to restore it or to make compensation for it to the person from whom he received it. We must point out that section 65 of the Con tract Act does not apply to contracts void under the provi sions of sections 23 and 24 of the said Act, for the latter are void ab initio and cannot be said to have become void or to have been discovered to be void. But even assuming that the] provisions of section 65 did apply to such a case, the rule is not quite as wide as the learned Advocate sought to make it out to be. It is true that if the contract is not yet perform‑1 ed or is merely an executory contract, then one of the parties may resile from his agreement subsequently, and may, in such circumstances, recover money paid in consideration thereof upon the repudiation of the contract as upon a failure of consideration. But if the illegal purpose or any material part of it has been performed, then the money paid cannot be recovered; for the parties in such cases must be held to be equally at fault, and the rule is that, in cases where the parties are in pari delicto, the position of the defendant is always better. Vide Petherpermal v. Muniandi Servai (35 1 A 98 (103)). In the present case, since it has been found by the lower appellate Court that there was such an agreement, then, upon the evidence in this case, it is clear that the agreement was fully performed, the installation works were duly carried out, accounts adjusted and ultimately Rs. 2,500 paid by the plaintiff Company to the defendant Company in settlement of its share of the profits under the said alleged illegal con tract. It is abundantly clear, therefore, that in this case both the plaintiff Company and the defendant Company were in pari delicto. The contention, therefore, that even in such circumstances the plaintiff, although an active participator in the alleged illegal contract, can still recover money paid thereunder cannot be accepted. It will furthermore be observed that in the case of Somu Pillai v. The Municipal Council, Mayavaram, the plaintiff there sought to recover damages for the breach of the con tract. This clearly shows that the contract in that case too had not been performed, and, therefore, the plaintiff was held to be entitled to recover the money which he had paid and this he could do in accordance with the principle which we have stated above. Hence, this case is not an authority which supports the wide proposition sought to be made out by the learned Advocate for the appellant. In this view of the matter and for the reasons that we have given above, all the points, taken by the learned Advocate for the appellant fail, and this appeal must, there fore, be and the same is dismissed with costs. AMIN AHMED, A. C. J.‑

I agree. K. B. A. Appeal dismissed.