TMI Blog2001 (7) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of a demand draft in favour of M/s. Seshasayee Brothers (Private) Limited, in the first week of March 1985. The defendant has not paid any amount either towards principal or interest in respect of the amount borrowed on 23.2.1985. The plaintiff was having some dealings with M/s. Seshasayee Brothers Private Limited from the year 1984 and the defendant is one of the Executives of the said company. In respect of the amount payable to the company, on account of the dealings had by the plaintiff, he sent a cheque dated 15.7.1985 for Rs. 14,845.70 in favour of the defendant drawn on Bank of Baroda, Tiruchirappalli. The sum of Rs. 20,000 sent to the defendant in the first week of March 1985 by way of a demand draft drawn in favour of M/s. Seshasayee Brothers (Private) Limited has been credited to the liability of the plaintiff in respect of the dealings which he had with the said company. As per the letter of the defendant dated 7.11.1985, written on behalf of the said company, he has specifically stated that as per the statement of accounts sent along with the same, the claim of the company has been completely settled. But, however, the defendant encashed the cheque amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, learned Advocate for the appellant has confined his argument only to the question, Whether Rs. 50,000, advanced by the plaintiff, by way of cash on 23.2.1985 is legal and recoverable in view of Section 269-SS of the Income Tax Act? 9. Section 269-SS appears in Chapter XX-B, which was inserted by the Income Tax Act (Section Amendment) Act 1981, came into force with effect from 11.7.1981, states, No person shall, after the 30th day of June 1984, take or accept from any other person (hereafter in this Section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if, (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment had fallen due or not, the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is (twenty) thousand rupees or more . In fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent/plaintiff is not entitled to claim the amount. 12. Learned advocate for the appellant has also drawn the attention of the Court to Section 65 of the Contract Act, which reads as under: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it . 13. Learned advocate for the appellant relied upon the decision of Kuju Collieries Ltd. v. Jharkhand Mines Ltd., wherein a fine distinction has been made in respect of Section 65 of the Contract Act. The Apex Court, in paragraph 6 has held, It may be that the panics or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the Section refers to a contract becoming void. That refers to a case, where an agreement which was originally enforceable and was, therefore, a contract, becomes void due to subsequent happenings. In both these cases, any person wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that therefore, the appellant/defendant cannot invoke and rely on the said Section to deny his liability. 17. Learned advocate for the respondent/plaintiff relied upon Section 65 of the Contract Act and we have already adverted to the said Section and it supports the case of the plaintiff. The Section is so clear that if an agreement is discovered to be void, as it has been done so, in the instant case, as the appellant/defendant put forward such a claim only before the appellate Court, which amounts to that the agreement to be discovered to be void and if that be so, the person, who has received the advantage, namely, the appellant has under such agreement or contract is bound to restore it to the plaintiff. 18. The respondent/plaintiff relied upon the case of DIP Narain Singh v. Nageshar Prasad. That is the case, where a distinction has been drawn between the agreement forbidden by law and one declared void. In that context, it was held that, There is a clear distinction between an agreement which may be forbidden by law and one which is merely declared to be void. In the former case, the Legislature penalises it or prohibits it. In the latter case, it merely refus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him possession and management of business. After his return, P made demands on G to hand over possession and management of the business which were refused by G. In a suit brought by P for declaration of his title and delivery of possession of the business, it was contended on behalf of G, that the arrangement for holding out G as a nominal owner was made by P to evade liability to pay income tax and thereby to defeat the provisions of the Income Tax Act, that the agreement under which business was to be held by G was invalid and P was riot entitled to claim possession of the business relying upon his own unlawful conduct. It was further held, It was not the object of the parties at the time when the transaction was entered into to circumvent or to defeat the provisions of the Income Tax Act by taking advantage of the fact that the business stood in the name of G, the nominal owner. It was true, that the plaintiff obtained benefit of a lower rate of tax for the business income and his personal income escaped taxation. But, it could not on that account be held that the transaction on which he founded his claim was unlawful. In claiming a decree for possession from the defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. It is to meet such situation and to provide remedies, in such case, principles of equity have been embodied in Section 70 of the Act to prevent unjust enrichment or unjust benefit and thereby held that the 2 agreement is void, the person who had advanced is entitled to recover the same as the amount was not advanced for gratuitous purposes. 22. In the case of Sita Ram v. Radha Bai, the Supreme Court had an occasion to consider the maxim In Pari delicto potior est conditio defendentis , and it was held, The principle that the courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud is expressed in the maxim in pari delicto potior est conditio defendentis. But, as stated in Anson's principles of the English Law of Contracts, 22nd Ed., page 343, there are exceptional cases in which a man will be relieved of the consequences of an illegal contract into which he has entered cases to which the maxim does not apply. They fall into three classes: (a) Where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in furtherance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. (ii) As Section 269-SS is visited with penalty under Section 271 D of the Income Tax Act, the object of imposing penalty is merely to the protection to the Revenue, and then the contract will not be regarded as prohibited by implication. (iii) If it was not the object of the parties at the time when the transaction was entered into to circumvent or to defeat the provisions of the Income Tax, the contract is not void. (iv) The consideration or object of an agreement is lawful unless it is declared by law that it is unlawful. (v) When an agreement is discovered to be void, the person, who has received any advantage under such agreement is bound to restore it to the person from whom he received it. (vi) At the time of entering into the agreement, the same was originally enforceable and was therefore a contract, becomes void due to subsequent happenings, in such case, the person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it. (vii) Section 70 of the Contract Act enables the Court to do substantial justice when a person lawfully does anything ..... X X X X Extracts X X X X X X X X Extracts X X X X
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