TMI Blog1933 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... said income and all other income save as hereafter mentioned for working expenses and the payment of dividends; (6) to invest the special and general donation fund and as to 30 per cent, at least of the special donation fund, utilise the income not as income of the company falling under (5) but wholly for charity; (7) to act as trustees for any charitable Institution or Fund and do everything incidental and conducive to the promotion of the objects of the donors etc. Shorn of everything but the essential, it is thus seen that the company is primarily concerned with the business of raising two funds and of these two funds the one is to be wholly, both as to capital and income, and the other, as to 30 per cent, at least of the capital invested, partly, set aside for charity. The two funds are in the memorandum distinguished otherwise than by name only by the size of the donations. The general donation fund is to be fed by donations of less than Rs. 50 each; the special donation fund is to be fed by donations of Rs. 50 or multiples thereof. Pursuant to these primary objects the company published advertisements and circulars and a booklet which has been called a prospectus, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious prizes, ranging from Rs. 5,000 to Rs. 20. Needless to say the bonuses do not by any means exhaust the subscriptions. In the case put in the bond before me it will be found if the figures are worked out that the subscriptions amount to rather over 63 lakhs (each bond represents Rs. 10) while the bonuses given amount to Rs. 74,220. The Bond is silent as to what happens to the balance. Charity is only expressly mentioned in Clause 8 when the "Bonds amount" of rupees one crore is to be paid to the Special Donation Fund "after all the Bonds are drawn for Bonuses." Whether that happy event would ever arise is of course, a matter of conjecture. As the association have expressed in the Bond the intention to issue a crore of bonds, it will be seen that what is paid ( sic ) if and when it is paid, into the special (not the general) Donation Fund, nothing is said about deductions for expenses or for bonuses paid out; nothing on the other hand is said about the interest flowing from the inconsiderable figure of 10 crores of rupees invested, a part from the payment of bonuses there out. When, however, the "Bond amount", i. e., 10 crores of rupees, has been paid into the Special Donat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money? Are the subscribers to have it returned or can the company keep it and if so what directions should be given as to the disposal of the fund ; does it go wholly to charity or wholly to the contributories or partly to one and partly to the other ? Before I examine the legal position that emerges it is necessary to mention a few dates : On 28th May, 1931 a petition for winding up was presented. On 14th October an interim injunction restraining the holding of any lottery was granted. On 1st February, 1932, the company was ordered to be wound up and by relation the winding up commenced on 28th May, 1931. Even after the interim injunction was ordered donations have been received but as to most of the subscribers they subscribed before drawings were made. That is to say, most of the subscribers have participated in a drawing and some few have, of course, been successful. A certain number of the subscribers have subscribed after the last drawing was held and these, of course, have never participated in a drawing. As no less a sum than 5 lakhs is said to be at stake (I doubt whether when the accounts are further examined it will be found that this sum, which is partly accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an ultra vires transaction may in winding up be recovered so far as traceable, and by any equitable apportionment, if shown to be somewhere represented by assets in the hands of the corporation." It will be seen from the foregoing that a supposed contract that is held to be ultra vires cannot be in any sense described as an illegal contract for it is not a contract at all. The transaction, as distinct from contract may, of course, be an illegal transaction but no part of the Contract Act concerned solely with contracts has in such a connection any application. It is not, as Lord Cairns points out, a case of avoiding a contract, or agreement, for illegality; it is a case of, thorough lack of ability on the part of one party, there being no agreement or contract at any time made as distinct from attempted to be made. In order to determine whether either the contracts attempt- ed to be made under what I will call the Donation Certificate Scheme or the Donation Bond Scheme were ultra vires it is only necessary to consider the memorandum and see whether those contracts were beyond the powers so conferred on the company. The company was clearly empowered to raise a Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to keep a lottery office or to publish any proposal of this nature. Section 23 of the Contract Act makes the "consideration or object" of an agreement unlawful if either is of such a nature that "if permitted it would defeat the provisions of any law" or "the Court regards it as opposed to public policy." The section is very unhappily worded. One does not usually speak of the consideration for an agreement but the consideration for a promise. It is difficult to see what is meant by " defeat the provisions" of a law. What is declared unlawful is not the agreement, or contract, but the object or consideration. But I think the section must be construed so that where it would be impossible to carry out the contract without violating the provisions of a law or committing a crime, then in such case the object must be deemed unlawful and the contract void. Now, here it is said it was not impossible to carry out this contract without committing crime, for even assuming the essential drawings involved a lottery, still Section 294-A only strikes at lotteries not authorised by Government and for all that appears this lottery might have been authorised by Government and one should assume tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheme and the observation of Littledale, J., in Hastelow v. Jackson (8 B. C. 226) must not be overlooked. He there said: "If two parties enter into an illegal contract, and money is paid upon it by one to the other, that may be recovered back before the execution of the contract, but not afterwards." The case of Barclay v. Pearson was relied upon by Tomlin, J., (as he then was) in (1926) 1 Ch. at 665 as deciding that the competitors in an illegal competition could obtain the return of their contributions but this, of course, is subject to the rule that if the illegal event has occurred and following upon it the prizes distributed, the contract being executed, the plaintiff is debarred from recovery, the reason being, I imagine, that the plaintiff has become by that time in pari delicto having stood by. I proceed, therefore, according to the following conclusions: 1.The Bond scheme was ultra vires. 2.The contributors to both schemes were not in pari delicto. It will be observed from the preliminary statement of facts that this is not a simple case where the sums contributed are held by a stakeholder and a claim is made before that stakeholder has parted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. In such cases I find it of advantage to proceed by steps. As regards those who contributed to the old Mysore Company it appears to me that the rule laid down in Hastelow v. Jackson (supra) applies. They are not entitled to recover anything. They have stood by far too long whether one regards them as innocent contributories to an illegal or to an ultra vires scheme. In the former case by standing by they have become in pati delicto and in the latter case by acquiescence they are debarred from their equitable remedy of tracing. As regards those who have won and received prizes they are for like reasons a fortiori debarred. This was conceded by the claimants. As regards those who were in truth applicants for loans and who applied after the last drawing they are, in my opinion, clearly entitled to get their money back unless they received their loans. This also was conceded by the claimants. As regards Certificate-holders and Bond-holders it does not, in my opinion, in view of the conclusion arrived at that they are not in pari delicto, make any difference whether they applied before or after the last drawing. It is reasonably clear from the cases that although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the whole of these ultra vires collections should go to charity. Once it is held that the scheme was ultra vires all the contractual terms go and the only ground on which, granted the subscribers can be allowed in equity to claim at all, they can have 30 per cent, deducted is that the whole transaction related to a scheme under which, in accordance with the memorandum of which they had constructive notice, 30 per cent, were to go, in any event and at once to charity. That they must assumed to have assented to when they subscribed and on the scheme being shown to be ultra vires they have their equitable remedy only on the terms that the part of the scheme that relates to charity be carried out. This has nothing to do in my opinion with such cases as In re British Red Cross Balkan Fund [1914 2 Ch. 419] cited in support of the proposition that there the object of the trust had failed. The object has not failed. The poor are always with us. This company, as to part, at once received these sums as trustees for a charitable object, the feeding of the poor and the care of animals. That trust, in my opinion, is to be assumed to be known to the subscribers. It has been in part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to had he wholly paid up; if he has one-third paid up he will be entitled to a third; and so on. Costs of all parties, as fixed below, will come out of the estate : The Advocate-General Rs. 500 His Junior Rs. 150 (Claimant) Messrs. S. Parthasarathy and Tiruvenkatachari Rs. 300 150 Mr. Sivaprasad Rs. 300 Counsel for Liquidator Rs. 300 His Junior Rs. 150 Certificate-holders and bond-holders, each ... Rs. 76 All these sums will be paid to the Counsel direct without any further orders out of the estate. If the liquidator has already agreed another fee that fee is to be paid. I do not part with this case without expressing my pleasure that the Advocate-General was able to bring to my attention the great help he had received from Mr. Sivaprasad, and that Mr. Brooke Elliott was able to express an equal indebtedness to Mr. Nagaraja Sastri. These encomiums, well earned, are, I am sure, good hearing to the young men themselves and I think come gracefully, from the leaders who thus recognise an indebtedness ..... X X X X Extracts X X X X X X X X Extracts X X X X
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