JUDGMENT
Bilal Nazki, J.
1. This is an appeal filed by Andhra Bank against the judgment and decree dated 16.4.1984 passed by the I-Additional Subordinate Judge, Vijayawada dismissing the suit being O.S. No.497 of 1981 for recovery of Rs. 1,14,2747-. The parties shall be referred to as they are arrayed in the suit.
2. Detailed facts are not necessary to be mentioned as the controversy is in a short compass. Defendants were running business in Abkari and the bank had sanctioned a loan facility of Rs.69,000/- in their favour. Defendants 2, 6 and 8 had deposited title deeds on 3.10.1978 with Huzurnagar’s Branch of the Bank. By this, an equitable mortgage was created in favour of the bank. Defendants 1 to 7 also executed a pronote on 29.9.1978 in favour of the bank. Certain other documents were also executed, but the loan was not repaid and the bank filed the suit. Execution of the documents was admitted, but it was denied that the amounts were received. The main defence which was taken by the defendants was that they had formed themselves into a partnership firm for doing arrack business and this fact was known to the plaintiff-bank. The arrack business was not permissible, so the amounts advanced to the defendants were for an illegal purpose and the purpose was opposed to the public policy. Therefore deposit of title deeds by Defendants 2, 6 and 8 would not create any right in the plaintiff-bank as the contract itself was void.
3. The first issue framed by the Trial Court was, “Whether the suit pronote is void and illegal as the amount lent under it is for partnership in Abkari business and is opposed to public policy and statute?” This issue was decided in favour of the defendants and against the plaintiff-bank. Evidence was led by plaintiff-bank and defendants did not lead any evidence. According to P.W.1, Abkari loan of Rs.69,000/- was sanctioned to Defendants 1 to 4 on 29.9.1978 by the bank, Defendants 5 to 7 were the co-obligates of Defendants 1 to 4 and Defendants 2, 6 and 8 had deposited their title deeds on 3.10.1978. He marked Exs.A1 to B23. It is pertinent to note that the plaintiff-bank in the plaint itself in para-2 submitted.
“The Andhra Bank Ltd. has sanctioned a loan facility of Rs.69,000/- (Rupees sixty nine thousands only) to the defendants one to four for doing business in Abkari, on the co-obligation of defendants five to seven and in this connection the defendants two and six and one Ponakala Subbarao who is the 8th defendant herein have deposited the titledeedon3.10.1978……..”
So the fact was known to the plaintiff-bank that the defendants were doing business in Abkari. In cross-examination P.W. 1 further admitted that the suit amount was lent for Abkari business and he had no record to show that the Defendant No. 1 and other defendants had licence and he could not say whether at any point of time the defendants were having Abkari licence or not. On facts as such there is no dispute and it is accepted by both the sides that the Abkari business could not be run without a licence and it is also nobody’s case that the defendants had a licence on the day the loan was advanced.
4. Now the contention of the defendants is that the contract itself was void and hit by Section 23 of the Contract Act. He relies on a Full Bench’s judgment of Kerala High Court reported in Krishna Menon v. Narayana Ayyar, which, according to them, covers the controversy. Before coming to this judgment, it may be relevant to note that Section 23 of the Contract Act lays down as to what considerations and objects are lawful and what are unlawful. It lays down that the consideration or object of an agreement is lawful, unless it is forbidden by law, or is of such a nature that if permitted, it would defeat the provisions of any law. It is also unlawful if it is opposed to public policy. In the present case we are concerned only with these three objects of an agreement because it is contended by the learned Counsel for the defendants that the contract was forbidden by law and if it was permitted, it could defeat the provisions of law and it was also opposed to public policy, as no Abkari business could be run without a due licence from the competent authority. The Kerala High Court considered the similar questions in Krishna Menon v. Narayana Ayyar (supra). The facts are similar. The appellant before the Kerala High Court had entered into an agreement with the father and his three sons, whereby the licence for the Foreign Liquor avern, Ernakulam which was held by the appellant, was agreed to be transferred in favour of the 2nd defendant in the case, who was one of three sons. The parties further agreed that the aforesaid four persons were to conduct the tavern from the date of the agreement, and in consideration paid Rs. 11,655-13-2 in daily installments. They also promised payment of kist to the Government and the rent of the building in which the tavern was housed. Then the Full Bench noted.
“It is common ground that when the aforesaid agreement was entered into, the Cochin Abkari Act No.l of 1077 (ME.) was operative, and Section 15 of the said Act prohibited sale of liquor or intoxicating drugs without licence.”
It considered various other judgments and then held:
“Having regard to the aforesaid decisions, it is clear that Courts do not decree money claimed as due under agreements which have permitted persons to do business in contravention of the Abkari Rules. The appellant’s learned advocate has, however, urged that the provisions of the then Cochin Abkari Act were different, inasmuch as Section 22 of the Act did not make the partnership in contravention expressly void and the particular rule forbidding transfer was beyond the delegated authority to frame rules. In support of this argument he relies on Sankaran v. Achuthan, 17 Cochin 185 and Lonappan v. Ouseph, 27 Cochin 222.
If the general policy behind enactments concerning Abkari matters in other States be not merely to secure revenue, but to serve public welfare as well, it would be difficult to hold that similar provisions in the Cochin enactment were framed with a different purpose. Indeed, the several provisions of the Cochin Act, were not different to those of the then adjoining State, and in Nanoo v. Ummini, 21 Trav. LJ 768, the Travancore High Court had followed the decisions of other High Courts by holding a partnership in contravention of the Excise Rules of the State to be void. We feel that Section 24 of the Cochin Contract Act being similar to Section 23 of the Indian Contract Act, there was no necessity to expressly provide that contracts in contravention of the Abkari Act would be void. Agreements calculated to defeat the object of any enactment would be void, and therefore, the absence of any such provision in the enactment cannot support the legality of the agreements.”
The Kerala High Court finally held:
“We hold the decision by the lower Court to be correct, and the suit to have been rightly dismissed on the ground of the contract being void. The appellant is precluded from claiming any relief from Courts because he must show, in order to obtain any relief, doing of something which has been done in contravention of legal rules.”
5. The learned Counsel for the defendants also relies on a judgment of this . Court reported in Malladi Seetharama Sastry v. Naganath Kawiwar and Sons, . This was a case in which A, a subscriber of telephone allowed his telephone to be installed in B’s premises and A1 allowed B to use it for B’s business without the written consent of the Government in contravention of the specific conditions of his agreement with the Government and in contravention of Section 20-A of the Telegraph Act. The Court found that A’s claim against B was hit by Section 23 of the Contract Act.
6. Similar law was laid down by a judgment of this Court reported in Kammari Balaram v. A. Bhoom Lingam, 1984 (1) An. WR 50, which related to sale of assigned land and such sale was barred by law.
7. In the light of these judgments there is no doubt that the contract entered into by the plaintiff with the defendants was void, therefore it was pleaded by the defendants that the suit was rightly dismissed by the Trial Court. But the learned Counsel for the plaintiff-bank submits that the Trial Court lost sight of the Section 65 of the Contract Act which lays down:
“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.”
8. The learned Counsel for the defendants, however, submits that these provisions would apply only if it was discovered later that the contract entered into between the parties was void, but where it was found at the inception that the contract was void, Section 65 of the Contract Act would have no application. In this connection, he relies on a judgment of this Court reported in Alapati Ramamurthi Gelli Krishnamurthi and Co. and Ors. v. Maddi Seetharamayya, AIR 1958 AP 427. The facts of this case need to be mentioned. The plaintiff filed a suit for recovery of a sum of Rs. 9,106/4/- with interest as damages from the defendants. The case of the plaintiff was that the defendants entered into a contract with the plaintiff to sell 75 bales of Chittivalasa or Nellimerla 40″ x 28″ H.D.D.W. plain pucca rope bound gunnies (each bale consisting of 400 gunnies) at Rs. 56/8/6 per 100 gunnies to be delivered to the plaintiff at Vijayanagaram or Nellimerla mill siding in three monthly installments of 25 bales each at the end of October, November and December respectively. The defendants, according to the plaintiff, refused to give delivery, though demanded, on the ground that under the Jute Price Control Order the contract had only to be settled and the difference in price alone could be paid. The plaintiff filed the suit claiming damages on the basis of the difference between the market rate prevailing on the due dates and the rate fixed in the contract. The defendants pleaded that the suit contract was a wagering contract and therefore not enforceable in law as it was entered into while the Jute Price Control Order was in force and therefore it ought to have been settled at the rate mentioned in the Order. The contentions raised by both the parties were discussed in detail by a Division Bench of this Court. Ultimately the Court found in Para-59:
“This section, so far as it is material to the question now raised, confers a right of restitution when a contract is discovered to be void. A party, who has received any advantage under such a contract, is bound to restore it to the other. Both parties in the instant case were found by the Court below to have entered into the contract that the defendants delivered the bales of gunny bags to the plaintiff and that the plaintiff paid the consideration therefore without knowledge of the said Order.
As the contract in derogation of the provisions of the control order was void, each of the parties was bound to restore the advantage received by him to the other. The plaintiff received the bags and disposed of them to third parties, and, therefore, he was not in a position to restore the goods received by him to the defendant. The contention advanced on behalf of the plaintiff is that despite the fact that the goods could not be restored in specie, as the defendant received the price calculated at a rate higher than the control rate, he received an advantage to the extent of the price representing the amount over and above the control price and, therefore, he had to disgorge the excess amount in favour of the plaintiff.
This argument, though it appears to be attractive, is not consistent with the well-understood doctrine of restitution. The limits of the doctrine is stated by Chitty on contracts, 20th Edition, at page 543 thus:
“The only remedy being in general rescission in cases of innocent misrepresentation, the law would not allow this to operate unless the parties could be restored to their original positions. There must be restitution in integrum.”
Then again it held;
“The object of Section 65 is not to make a new contract between the parties when the contract entered into between them has been discovered to be void but only to restore the advantage received by one party thereunder to the other. Unless a Court can restore the parties to their original position, having regard to the circumstances of each case, there is no scope for the application of Section 65.”
9. Coming to the argument of the learned Counsel for the defendants that Sections 65 of the Contract Act would not apply to the contracts which were void ab initio, it may be pointed that the issue was resolved as early as in 1922 by a Privy Council in a judgment reported in Harnath Kuar v. Indar Bahadur, AIR 1922 PC 403. In this case there was an agreement by which an interest was sought to be transferred by one Inder Singh, but he had no interest capable of transfer on the relevant date, but had merely an expectancy. While analyzing Section 65 of the Contract Act, the Privy Council held:
“So framed, the plaintiff’s claim to compensation rests, not on any principle or formula of English Law, but on the words of this section, and it has to be seen whether the facts of this case come within its scope. The section deals with (a) agreements and (b) contracts. The distinction between them is apparent from Section 2. By clause (e) every promise and every set of promises forming the consideration for each other is an agreement, and by clause (h) an agreement enforceable by law is a contract. Section 65, therefore, deals with (a) agreements enforceable by law and (b) with agreements not so enforceable. By clause (g) an agreement not enforceable by law is said to be void.
An agreement, therefore, discovered to be void is one discovered to be not enforceable by law, and, on the language of the section, would include an agreement that was void in that sense from its inception as distinct from a contract that becomes void.”
10. Therefore the argument of the learned Counsel for the defendants cannot be accepted.
11. There is another angle to the present controversy. The documents relating to the properties of Defendants 2, 6 and 8 have been deposited with the bank. If the agreement is held to be void and hit by Section 23 of the Contract Act and the suit of the bank is dismissed, then these defendants would also be a remediless to recover their documents and in the absence of those documents, they cannot even sell their properties. Section 65 of the Contract Act envisages that a party should be put back to the position at the time of agreement and mutual advantages received from each other can be restored to each other. It is settled law that so long as unlawful or any agreement remains unperformed, any amount paid under it may be restored to the person who has paid it. The defendants had not led any evidence as to for what purpose the money was used. In a judgment reported in Gauri Shankar v. Nathu Lal, (DB), the Allahabad High Court was also dealing with a case where it was found that the transaction of mortgage was not valid mortgage because the document had not been registered and the defendant wanted to avoid payment of the money advanced. The Allahabad High Court held:
“It being settled law that, where a plaintiff seeks to recover possession of property from a mortgagee, holding under a void mortgage, he can do so only on payment of the mortgage money, the defendant could not have successfully resisted the plaintiff’s claim for redemption under the said section merely by pleading that the transaction of 11.11.1934 was not a valid mortgage. That is to say, they had to restore possession to the plaintiff on this payment of what was due to them from the plaintiff under the mortgage, even though it might have been as such invalid.”
12. For the reasons given hereinabove, we allow the appeal, set aside the judgment and decree of the Trial Court and decree the suit of the plaintiff-bank as prayed for in the plaint. In the peculiar circumstances of the case, no costs. A decree be drawn accordingly.