TMI Blog1964 (10) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... n or about the year 1941 he took a lease of No. 42, Harrison Road, Calcutta and had started a boarding house business in the premises under the name and style of International Home, that he conducted the business with his own funds which belonged to him absolutely from the date of its inception, that he was personally managing the business and utilising the profits thereof for his own purposes, that when he started the business he was in the employment of the Court of Wards and by the service rules governing the said employment he was not permitted to start or carry on any trade or business of his own and on that account it was arranged with the defendant Prabhendra Mohan Gupta - hereinafter called 'Gupta' - that the latter be held out as the nominal owner of the said business and pursuant to that arrangement the lease of the premises for the business was taken in the name of Gupta and licences from the police and the municipal authorities were also taken in the name of Gupta, that from the very inception he was in possession and management of the business and exercised all rights of ownership over the same being absolutely entitled thereto, that Gupta had never made a clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces. The plaintiff Majumdar was carrying on business as owner of Sunny lodge a boarding house business between the years 1938-41, and that business was closed in or about February 1941 because the landlord of the premises in which it was conducted obtained a decree-in-ejectment against the plaintiff and compelled him to vacate the premises. Thereafter tenancy was obtained of 42, Harrison Road on May 1, 1941 and in July the International Home was started and the furniture and utensils which were used in the Sunny Lodge were used in the new business. The case of Gupta that he had purchased the furniture and the utensils from the plaintiff for a sum of ₹ 900 and had started the business for himself was disbelieved for the reason that Gupta was always in straitened circumstances and had often to borrow small sums of money from the plaintiff who was at all material times gainfully employed. At the commencement of the business, for diverse purposes such as deposit with the landlord towards rent, provision for furniture, utensils and other things for the boarding house ₹ 4,000 were needed and this Gupta who was in impecunious circumstances could not have procured. The defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to conduct any business of his own. The appellate Court agreed with the view of the Trial Court. 8. In this appeal with special leave this Court normally does not seek to re-appreciate the evidence, and concurrent findings of the Courts below are not allowed to be re-opened unless there are special circumstances justifying a departure from that course. Counsel appearing on behalf of the appellant has not seriously attempted to challenge the finding of the Courts below on the first issue. But counsel submitted that assuming that on the evidence it was established that the real owner of the business was the plaintiff, his suit must still fail, for the plaintiff had with a view to circumvent the service rules of the Court of Wards, entered into an unlawful agreement with Gupta and had held out the latter as owner of the business, it being settled law that the Court will not countenance the claim of the plaintiff who was on his own admission guilty of an act prohibited by law and assist him in obtaining possession of the business. In addition, counsel submitted that the arrangement for holding out Gupta as a nominal owner was made between the plaintiff and Gupta to evade liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the business. Plaintiff also admitted that when called upon he had submitted a separate personal return for the salary earned by him, but that income was not taxed and tax was assessed on the business income as if it belonged to Gupta. The plaintiff also admitted that his object in filing the affidavit was to get rid of tax liability on his personal income. 11. By the device of making an untrue statement the plaintiff has undoubtedly evaded tax. The plaintiff was earning salary as an employee of the Court of Wards and had presumably some other income which in the aggregate amounted to ₹ 1,800 per annum. If the business of International Home was disclosed as belonging to the plaintiff, the aggregate of the personal and business income was liable to be charged to tax under the Income-tax Act, 1922. By the expedient of holding out the defendant as an ostensible owner of the business the plaintiff evaded liability for payment of tax on his personal income and even tax on the business income was charged at a lower rate. But on that account we are unable to hold, disagreeing with the High Court, that the object in entering into the arrangement for holding out Gupta as owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive object suggested by counsel for the appellant is not proved. It is unnecessary therefore to enter upon a discussion of the authorities which make a distinction between claims in which a party to an action has to rely essentially upon a conspiracy to effectuate an illegal or fraudulent purpose, to support his claim to the property transferred to or held out in the other party's name, and claims in which the unlawful or unworthy object is fulfilled, the property is owned by the claimant, and the claimant, seeks the assistance of the Court not to effectuate his unlawful purpose, but in substance to enforce his title by a plea in detinue under a transaction which is not tainted by illegality. A. R. P. L. Palanianna Chettiar v. P. L. A. R. Arunasalam Chettiar L.R. [1962] A.C. 294 illustrates the former principle. In that case the Judicial Committee declined to assist the enforcement of a claim in fraud of the public administration in Malaya, because the plaintiff had of necessity to disclose before he could obtain a decree for restoration of his property transferred to the defendant that he had practised deceit on the public administration. Sajan Singh v. Sardara Ali L.R. [1960] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intiff in the suit out of which this appeal arises, had established that he was the proprietor of the Boarding House carried on in the name and style of International Home at 42, Harrison Road, Calcutta. That property admittedly stood under the registered conveyance in the name of his father-in-law, defendant Gupta and that business was also conducted by the defendant. The case set up by the respondent was that the purchase of the property was with his funds and that the defendant - Gupta was merely a benamidar. The evidence on this point was examined elaborately by the learned Single Judge at the trial and by the Division Bench on appeal and they concurrently found that the defendant - Gupta was merely a benamidar for the respondent and that the purchase of the property in the name of the defendant and the carrying on of the hotel business by the defendant was really on behalf of the respondent. That finding was not challenged before this Court and does not, therefore, require any examination. 18. Accepting that finding, however, two questions were raised by the learned Counsel for the appellant. One was that the purpose for which this benami transaction was entered into by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon him to submit returns on the basis that he was the real owner of the International Home, 42, Harrison Road. The respondent then asserted that the property and the business did not belong to him, but to the defendant Gupta and that he was merely a manager under Gupta. In connection with this assertion to the Income-tax department he swore two affidavits one in December 1947 and the other in January 1948, before the Presidency Magistrate, Calcutta which contained these representations. In his cross-examination respondent's attention was drawn to the affidavits and to their contents and his answer was this : A. Then I was charged with the amounts as I was asked by the Income-tax Officer to file an affidavit. Then I made the first affidavit which is here in the file. I showed him my first affidavit whereupon the Income-tax Officer told me something. Pursuant to that I told him, 'I rejected the first affidavit and made a second affidavit which was accepted by them'. - (In the second affidavit dated January 31, 1948 he stated 31, 1948 he stated : 'I am an employee under Gupta - proprietor of International Home, 42, Harrison Road, Calcutta. I have been working ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has been stated in decisions of the highest authority on several occasions and it is sufficient to summarise the underlying principles. Where a contract or transaction ex facie is illegal there need be no pleading of the parties raising the issue of illegality and the Court is bound to take judicial notice of the nature of the contract or transaction and mould its relief according to the circumstances. The case before us is, not however, of that type. Even where the contract is not ex facie legal if the facts given in evidence clearly disclose the illegality the Court is bound to take notice of this fact even if not pleaded by the defendant Per Lindley L.J. in Scott v. Brown [1892] 2 Q.B. 724. The enunciation of the law on this point by Devlin J. in Edler v. Auerbach [1950] 1 K.B. 359 though more elaborate and summarising the principles formulated by the House of Lords in North-Western Salt Company Ltd. v. Electrolytic Alkali Company Ltd. [1914] A.C. 461 does not contradict the statement by Lindley L.J. In the case on hand there is a clear admission by the respondent himself of the facts on which illegality is sought to be made out. The affidavits which he swore for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficial interest was concerned. Wynn-Parry J. considered the evidence as to why the securities were purchased in the name of the wife and why there was a complete absence in the documents of any reference to the husband having any beneficial interest in those securities. The evidence led before the Court disclosed that under the law of the United States, where the dividends on the bonds were payable if the payment was to a non-resident alien the recipient would be liable to a withholding tax. The husband was a non-resident alien and if his beneficial interest was disclosed the dividend payable in respect of this investment would have protanto suffered the deduction of tax, while the wife being an American would not have been so liable. The question that was raised before the learned Judge was whether in those circumstances the husband could assert his title to the moiety of the securities to which he claimed beneficial interest. The learned Judge dismissed the action holding that as the securities were put in the name of the wife in order to evade the law the husband who did not come before the Court with clean hands could not claim his title and that the property should lie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which they had assigned away .... where they had intended to defraud creditors, who, in fact, were never injured ...... But where the fraudulent or illegal purpose has actually been effected by means of the colourable grant, then the maxim applies, 'In pari delicto potior est conditio possidentis'. The Court will help neither party. 'Let the estate lie where it falls'. 29. I might point out that later decisions both of the Indian High Courts and of the Privy Council have all proceeded on the acceptance of the principles which Lord Atkinson formulated in Petherpermal's case. [1908] L.R. 35 IndAp 98 30. Pausing here, it might be pointed out that exactly the same conclusion has been reached by the Courts in England where a benami transaction was entered into for the purpose of defrauding creditors. It is hardly necessary to add that the position in England under which a resulting trust is deemed to arise when a purchase is made in the name of another with one's own money and without an intention of conferring on him a beneficial title is identical with the law as to benami in India. In Gascoigne v. Gascoigne [1918] I ch. 410 a husband took a lease of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le test, it cannot be considered to be the sole or conclusive criterion. For, the question whether a particular transaction is benami or not, is one of intention and there may be other circumstances to negative the prima facie inference from the fact that the purchase money was supplied by or belonged to another. The position of the parties, their relation to one another, the motives which could govern their actions and their subsequent conduct may well rebut the presumption. 32. Even where the benami is established effect will not be given to the real title if the result of doing so would be to violate the provisions of a statute or to work a fraud upon innocent persons - Gur Narayan v. Sheo Lal Singh [1918] L.R. 46 IndApI. On this reasoning it would prima facie appear to follow that the respondent having adopted this device of purchasing the property benami in the name of his father-in-law for the purpose of evading the provisions of the Indian Income Tax Act would not be entitled to recover the property on the basis of his title. 33. Two points were made by the learned counsel for the respondent for avoiding this result. In the first place, he submitted that the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Court, after quoting the maxim In pari delicto on which the defence was based, observed : The Latin maxim must not be understood as meaning that where a transaction is vitiated by illegality the person left in possession of good after its completion is always and of necessity entitled to keep them. Its true meaning is that, where the circumstances are such that the Court will refuse to assist either party, the consequence must, in fact, follow that the party in possession will not be disturbed. As Lord Mansfield said, the defendant then obtains an advantage 'contrary to the real justice', and, so to say, 'by accident'. and finally added : We are satisfied that no rule of law, and no considerations of public policy, compel the court to dismiss the plaintiff's claim in the case before us, and to do so would be, in our opinion, a manifest injustice. 35. In view of these observations, I am unable to hold that the decision is authority for the position that a suit for possession on the basis of title could never be dismissed even if the object for which the transfer was effected was illegal and that object has been achieved. The maxim ex turpi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the chattels. Since effective possession had passed to the defendants by virtue of the contract, the sole justification for this demand was their failure to pay the agreed installments. The plaintiffs, therefore, were inevitably driven back to the contract in order to prove the amounts of the installments, the dates at which they were due and the agreed effect of their non-payment. This part of the case would therefore seem to be on all fours with the action by a lessor to enforce the forfeiture of the lease for condition broken. This difficult decision turned upon the effect of a bailment. It would seem, however, that if the ownership of a chattel, as distinguished from a mere possessory right, were to be transferred under an illegal contract, it would remain perpetually irrecoverable. In such a case the transferor would have no title irrespective of the illegal transaction. His only mode of obtaining relief would be to terminate the contract under which he purported to transfer title to the defendant, and he could not take proceedings for this purpose without showing that he was particeps criminis. 38. I consider these remarks correctly set out the difficulties created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its being tainted with any illegality. 41. Besides this, Lord Denning himself pointed out that there were many cases which showed that where a transfer of property was effected in order to achieve an illegal purpose and that purpose was achieved, the plaintiff was disabled from recovering the property for the reason that the Court will not assist him in that endeavour. 42. Pausing here, I need only add that there is no question here of the legislation whose avoidance or contravention stamps the transaction as illegal being one enacted for the protection of persons like the plaintiff. Such was the case of Amar Singh v. Kulubya [1963] 3 W.L.R. 513 where the principle explained in Kearley v. Thomson 24 Q.B.D. 742 by Fry L.J. : In these cases of oppressor and oppressed, or of a class protected by statute, the one may recover from the other, notwithstanding that both have been parties to the illegal contract. as an exception to the rule in pari delicto potior est condition possidentis was applied. 43. Two questions thus arise which have to be separately considered : (1) If nothing more had happened in this case than that the respondent had purchased the property bena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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