TMI Blog1986 (10) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... ("Corporation", for short), is the plaintiff in the suit. Respondents are the defendants. Respondent No. 1 died during the pendency of the appeal. His legal representatives are brought on record as respondents Nos. 1( a ) to 1( e ). The parties will hereinafter be referred to with reference to their array in the trial court. The suit was brought by the Corporation as the successor-in-interest of the United Karnataka Insurance Co. Ltd. ("company", for short). Plaintiff's case is that the late defendant No. 1, who was the father of defendants Nos. 2 to 4 along with his major son, defendant No. 2, executed a simple mortgage deed dated April 1, 1952, for a sum of Rs. 30,000 in favour of the company, both as the "karta" of the joint family and also as the guardian of the minors defendants Nos. 3 and 4; that all the assets and liabilities of the controlled business of the company statutorily stood transferred to and vested in the plaintiff-corporation consequent upon the coming into force of the Life Insurance Corporation Act, 1956 (hereinafter referred to as "the Act"); that defendant No. 1 even after admitting the amount due under the suit mortgage, failed to pay the same. It was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her contended that the alleged purchase of shares of the value of Rs. 12,000 was not out of their own volition and free will, and was not binding on the defendants. There was a counter-statement filed by the plaintiff-corporation with the permission of the court as per exhibit 23; and the defendants also filed a rejoinder as per exhibit 30. It is not necessary to refer to the same. On the pleadings, the trial court framed as many as 19 issues. The trial court negatived the contentions of the defendants and decreed the suit as aforesaid. In the appeal preferred by the defendants, the learned District Judge has reversed the decree and dismissed the suit. In the appeal before the learned District Judge, only issues Nos. 1, 3, 4, 5, 6, 10, 11, 12 and 15 were pressed. The learned District Judge, inter alia, held that the mortgage transaction did not form part of the controlled business of the company and, consequently, the right of action in regard thereto did not vest in the- plaintiff-corporation under section 7 of the Act; that the consideration of Rs. 30,000 mentioned in the mortgage deed (exhibit 75) in so far it included the sum of Rs. 12,000 retained by the company as inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not correct and are opposed to law and the preliminary decree passed by the trial court is entitled to be restored. However, it is not disputed before us and it is also a finding of fact recorded by the learned District Judge that out of the consideration amount of Rs. 30,000, a sum of Rs. 12,000 was not paid in cash but was retained as interest-free deposit to be adjusted towards the share certificates of the company to be issued to the defendants and in fact the share certificates were issued to the first defendant and his two brothers for the aforesaid sum of Rs. 12,000. It is also not disputed before us that the remaining sum of the consideration amount of Rs. 18,000 and the interest thereon had been paid by the defendants before the suit and that the suit claim relates wholly to this disputed sum of Rs: 12,000 and interest thereon. In view of these undisputed facts, we do not consider it necessary to go into the other questions raised by the plaintiff-corporation bearing on the correctness of the findings recorded by the learned appellate judge except the following points: (1)Whether the entire mortgage transaction in question between the company and the defendants wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r without prejudice to the generality of the words contained in the said paragraph. But, a mere provision in the memorandum of association to enable the company to do the business of lending money is not sufficient to attract the proviso to sub-section (2) of section 54A of the Indian Companies Act, 1913, unless it is shown that lending of money was part of the ordinary business of the company and the loan in question was made by the company in the ordinary course of its business. Therefore, in this case, there is no scope for applying the proviso to subsection (2) of section 54A of the Indian Companies Act, 1913, as that part of the loan was clearly intended to enable purchase of the shares of the lender-company itself. In view of the prohibition to lend money or give any financial assistance in any manner by the company to purchase its shares, the adjustment of Rs. 12,000 being a part of the consideration of the suit mortgage by the company towards the purchase of its shares became unlawful. The object of the company was clearly to increase its own share capital. The adjustment of the part of the consideration of the mortgage towards the share capital was forbidden by law. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty Act, which relate to contract alone, that are to be read as part of the Indian Contract Act. Therefore, such of the provisions in the Transfer of Property Act, which relate to contracts shall have to be interpreted in the light of the provisions contained in the Indian Contract Act. Transfer of ownership of immovable property is effected by compliance with certain legal formalities, in accordance with the provisions contained in the Transfer of Property and Registration Acts. Once there is a completed conveyance, the matter does not remain in the domain of contract, and the consequences of the distinction between an agreement which is normally executory and a completed conveyance are attracted. A mortgage is both a debt and a conveyance. Section 6( h ) of the Transfer of Property Act, provides that: "No transfer can be made (1) in so far as it is opposed to the nature of the interest affected thereby, or (2) for an unlawful object or consideration within the meaning of section 23 of the Indian Contract Act, 1872, or (3) to a person legally disqualified to be a transferee." Thus, section 6 of the Transfer of Property Act, which deals with the topic of "what may be transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object or consideration within the meaning of section 23, Contract Act. Sub-clause ( i ) further provides that nothing in that section would authorise a tenant having an untransferable right of occupancy to assign his right as such tenant. Thus an attempted transfer of an untransferable right of an occupancy tenant is merely declared to be unauthorised and, therefore, void and ineffectual. Similarly, a transfer for an unlawful object or consideration is declared to be void and ineffective. So far as these sections go, they do not lay down the law that if such a non-transferable interest is included among other transferable properties, the whole transaction is illegal. It is noteworthy that in order to bring in the operation of section 6( h ), the object or consideration for the transfer should be unlawful. The section would be inapplicable where the object of the consideration for the transfer is itself not unlawful but the transfer may be ineffective on some other ground... Coming back to the question as to how much of the provisions of the Contract Act are to be deemed to have been incorporated in the Transfer of Property Act, I must point out that what has in some cases been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to maintain the suit on the basis of the personal covenant to pay as per the first part of the deed, which the debtor had agreed to pay on demand. It was further held that the right of the plaintiff to recover the amount due on the basis of the agreement was perfectly valid as it was not dependent on the failure of the debtor to perform the contract of mortgage; therefore, it was held that section 24 of the Indian Contract Act did not apply. Thus, the decision in Mohd. Rahman, AIR 1933 All 468, also rested on the severability of the valid portion of the contract. This was also the principle which was adopted in Dip Narain Singh, AIR 1930 All 1 [FB]. It may also be noticed that in Eastern Mercantile Bank Ltd. v. N.T. Philip, AIR 1960 Ker 194, the entire mortgage deed has been held to be void, applying section 24 of the Indian Contract Act. That was a case where an agreement to stifle the prosecution was the consideration for the mortgage deed on which the claim was founded in the suit. It was specifically stated in the mortgage deed that a sum of Rs. 2,400 was misappropriated by the son of the mortgagor and as a compromise, the police prosecution pending against the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Applying the aforesaid conclusions to the facts of the present case, it is seen that the suit transaction is a mortgage. The mortgage is both a debt and a transfer of interest in immovable property. The mortgage debt in question was valid to the extent of Rs. 18,000. The remaining portion of the debt amounting to Rs. 12,000 was invalid because it was hit by sub-section (2) of section 54A of the Indian Companies Act, 1913, read with section 23 of the Indian Contract Act. The invalid portion of the debt is severable. The valid portion has already been paid. It is an established principle, rooted in public policy, that the courts of law do not aid or do not become instrumental in enforcing transactions ex turpi causa. We may usefully refer to the observations made in Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 2 All ER 1073, 1150 (Ch D): "It is not disputed by the plaintiff company that if a contract or 'consensual arrangement' is illegal ex facie, or made for an illegal purpose, then the court will no e.g ., by specific performance, money judgment or damages) or to recover propt assist in. enforcing the contract or 'consensual arrangement' (whether ,erty ..... 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