1
MNM
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
APPELLATE SIDE
WRIT PETITION NO.1094 OF 2004
Bharatiya Bhavan Co-operative Housing
Society Limited & Anr. ...Petitioners
Vs.
Smt. Krishna H. Bajaj & Ors. ...Respondents
Mr. A.Y. Sakhare, Sr. Counsel i/b. Mr. M.N.Bhadrashete,
Advocate for the Petitioners
Mr. Zal Andhyarujina with Ms. Duhita Lewis i/b. M/s Goenka Law.Asso.
Advocate for Respondent No.1.
CORAM : SMT. ROSHAN DALVI, J.
Date of reserving the Judgment : 11TH JANUARY, 2010
Date of pronouncing the Judgment :17TH FEBRUARY, 2010
JUDGMENT :
1. The Petitioner is the Co-operative Housing Society (Society) in which the
Respondent No.1 (Respondent) is a member upon transfer of the
membership of one Mrs. Preeti Umesh Khimji (Khimji) who held the shares
of the Society in respect of flat Nos.24 and 25 in the Society building being
Bhatia Bhawan at Marine Drive, Mumbai 400 020 (the premises).
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2.The Respondent No.1 entered into an agreement with Khimji on 30th March
1992 for sale and transfer of the shares and the premises of Khimji to her
for a consideration of Rs.3.21 Crores. It was agreed in the agreement
dated 30th March 1992 by the parties that they would contribute equal to
3% of the consideration amount towards transfer fees. The parties had
certain meetings with the office bearers of the Society being the Chairman
(Petitioner No.2) and the Secretary. The parties have entered into
correspondence with the Society as well as certain other authorities
concerned with the transfer of the shares and the premises. Khimji
contributed his share to the Respondent. The Respondent has paid the
amount to the Society. This payment was made as a contribution to the
Repair & Maintenance Fund of the Society. The Respondent was conferred
membership of the Society and the share certificates duly transferred in her
name was given to her. All this has transpired between April 1992 to July
1992 as shall be enumerated presently.
3.The Respondent challenged the receipt of the amount representing 3% of
the consideration amount towards transfer fees as illegal demand for
transfer fees having been paid under coercion in the guise and name of the
building repair and maintenance fund for the first time by her Advocate’s
notice dated 11th August 1994. Under that notice she demanded
repayment of the amount paid to the Society with interest at 21% p.a
thereon along with other amounts upon certain bills for repairs raised upon
the Society. That having not been repaid by the Society the Respondent
No.1 filed a dispute before the First Co-operative Court at Mumbai being
C.C.No.1/1222/94. The learned Co-operative Court partly allowed the
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dispute for refund of the amount paid to the Society under coercion with
interest at 12% p.a thereon.
4. The Society preferred an Appeal therefrom to the Maharashtra State Co-
operative Appellate Court which came to be dismissed. Both these orders
are, therefore, challenged in this Writ Petition.
5.The Petitioners claim that the Co-operative Court had no inherent
jurisdiction to try the dispute because it related to the transaction prior to
the Respondent becoming a member of the Society and hence was not a
dispute between the Society and its member. That contention has been
rightly negatived. The dispute was not only for and in respect of the
coercion practiced upon the Respondent prior to her being a member
which related to the payment of the amount on representing 3% of the
consideration under the transaction payable as transfer fees, but was also
in respect of other amounts incurred by way of repair work by the
Respondent and claimed from the Society after she became a member. The
dispute was filed after the Respondent became a member. As per the
judgment in the case of Ramagauri Keshvlal Virani Vs. Walkeshwar
Triveni Co-operative Housing Society Ltd. 1999 C.T.J.198 the Co-
operative Court would have jurisdiction.
6.The Petitioners have challenged the question of fact relating to the exercise
of coercion upon her for the illegal demand of transfer fees. This dispute
has been raised by the Respondent for the first time in August 1994 though
the payment was made in July 1992. The Respondent examined her
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constituted Attorney. His evidence has been considered by the Co-
operative Court as well as the Co-operative Appellate Court with regard to
the factum of the coercion, if at all, used. The parties have entered into
extensive correspondence before and after the transaction of the
Respondent with the Society for payment of that amount paid as transfer
fees though stated to have been paid towards the building repair and
maintenance fund which also shall be dealt with presently.
7. Upon the Respondent’s case that the payment was made upon an illegal
demand of transfer fees by the Society which she paid under coercion, the
aspect of repayment of the amount paid would require to be first
considered.
8. The transactions relating to shares and premises in a Co-operative Society
are governed under the Maharashtra Co-operative Societies Act 1960 (the
Act) and the model bye-laws issued thereunder. The model bye-laws
would govern the affairs of the Society, unless the Society has framed its
own bye-laws. The Society in this case has adopted the model bye-laws.
Bye-law No.40 thereof relates to transfer of shares and interest in the
capital and property of the Society. It lays down the rights and entitlements
of the Society as well as the members seeking transfer of their shares and
interest in the capital and property of the Society. One of the requirements
under bye-law 40(d) (vii) is the payment of premium by the member of the
Society to the Society at the rate fixed in the AGM not exceeding Rs.
25,000/-. Any additional amount by way of donation etc., may be taken
only with the consent of the member.
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9. Indeed demand of money to be paid as transfer fees to the Society of an
amount representing 3% of the consideration under the transaction of the
sale/purchase of the flat is illegal except if it is donated by the member
voluntarily.
10.The Act under which the bye-laws are framed, therefore, specifically
forbids receipt of any premium in excess of Rs.25,000/-. Consequently,
under Section 23 of the Indian Contract Act the consideration paid by way
of transfer fees in excess of Rs.25,000/- would be void as forbidden by the
model bye-laws under the Act. The relevant part of Section 23 of the
Indian Contract Act runs thus :-
“23.What consideration and objects are lawful, and what
not.- The consideration or object of an agreement is lawful,unless-
it is forbidden by law; or
……..
……..
……..
……..
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of which
the object or consideration is unlawful is void.”
11.Any member of the Society or any proposed member of the Society paying
any transfer fees in excess of Rs.25,000/- would be entering into a void
contract since the consideration thereunder is void being forbidden by the
aforesaid law. Payment under bye-law 40(d)(vii) is independent of the
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amounts claimed from members of the Society by way of charges of the
Society under bye-law No.71(a)(iv). Such amounts can be claimed
proportionately from the persons who are already members.
12. Mr. Andhyarijuna relied upon Section 65 of the Contract Act to enforce the
obligation of the Society which had received advantage under the contract
with the Respondent which was later discovered to be void by the
Respondent. Section 65 runs thus :-
65. “Obligation of person who has received advantage under
void agreement, or contract that becomes void – When an
agreement is discovered to be void, or when a contract becomesvoid, 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.Mr. Andhyarujina would contend that the Society received an advantage
under its agreement with the Respondent for payment of the illegal
transfer fees and had the obligation to return it under the aforesaid
provision. He contends that it was only in August 1994 that the
Respondent discovered that her contract with the Society was void having
the consideration which was unlawful. He relied upon the case of
Thakurain Harnath Kuar Vs. Thakur Indar Bahadur Singh 1922 Privy
Council 403. That was not a case of a contract forbidden by law. It was a
case of an agreement which was later discovered to be void. That
agreement was void only because a person had no interest in the lands he
sought to transfer, but mere expectancy. He had this expectancy because
the lands belonged to another through whom he claimed, but that other’s
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widow had the interest which her husband during his life time had, under
Hindu Law and under the Oudh Estates Act (which was analogous to
Section 3 of the Hindu Women’s Right to Property Act which later came to
be applied to the whole of India from 1937) and he was a collateral and
succession to collaterals opened only after the widow’s death. Under these
circumstances the transfer/contract to sell the land by him was void. That
was not the case of an agreement being void under Section 23 of the
Contract Act being prohibited by any other law.
14.The case of Kuju Collieries Ltd. Vs. Jharkhand Mines Ltd. A.I.R. 1874
S.C. 1892 also relied upon by Mr. Andhyarijuna was a case of a mining
lease in favour of the Plaintiff. The lease was contrary to the provisions of
the Mines and Minerals (Regulation and Development) Act, 1948 and the
Mineral Concession Rules, 1949 made thereunder. The lease was void ab
initio. The Lessor knew that legal position. It was observed that he was
already in the business of mining at the time the lease was entered into. He
had the advantage of consulting Lawyers and Solicitors. The Lease Deed
was drawn up and prepared by Solicitors. The mining lease related to a
“Salami” which was rendered illegal under the Mining Rules. It was held
that the Lessor was not entitled to claim relief under Section 65 of the
Contract Act. It was observed that Section 65 would come into play when
the Plaintiff comes to know or finds out that the agreement is void or
discovers later that the agreement is void. Knowledge is an essential
requisite in such cases. It is observed that there may be cases where parties
entered into an agreement honestly thinking that it is a perfectly legal
agreement and then discovered it to be void, but a person who gives
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money for an unlawful purpose knowing it to be so has knowledge of the
illegality or unlawfulness, and if such a finding of fact can be imputed upon
him he cannot say that he later discovered it to be void, since the law will
not assist the person who comes with unclean hands. It is, therefore, held
that the invalidity of the contract or agreement should be discovered
subsequent to the making of it to derive benefit under Section 65 of the
Contract Act. Such advantage cannot be taken by parties who knew from
the beginning the illegality of the agreement. It was, therefore, held that
such a party cannot be restored the advantage received by the other under
Section 65 of the Contract Act. It was held that there was a distinction
between an agreement and contract. Under Section 65 a contract was
necessarily an agreement enforceable by law and that which was not void.
The agreement which is later discovered to be void would mean an
agreement which is not enforceable under Section 2 of the Contract Act
and therefore, not a contract. It may be that the parties or one of the
parties did not know that it was not enforceable at the time he or they
entered into the contract. They may have come to know later that their
agreement was not enforceable; that is that it was not a contract at all.
The judgment further holds that if at the time the agreement was entered
into, both parties knew that it was not lawful and was, therefore, void
there was no contract at all, but only an agreement. Hence, that would not
be a case of an agreement which is later discovered to be void – it was void
ab initio. Therefore, Section 65 does not apply to such a case.
15.Mr.Sakhare strongly relies upon this enunciation of the law in this
judgment for the recovery of the amount by the Respondent by restitution
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of the advantage thereunder as claimed by the Respondent in the dispute.
It is this aspect which is most material.
16.Further Mr. Andhyarujina claimed refund/repayment from the Society, to
whom money was paid by the Respondent by mistake, under Section 72 of
the Indian Contract Act. Section 72 runs thus:-
“72. Liability of person to whom money is paid, or thing
delivered, by mistake or under coercion. – A person to whommoney has been paid, or anything delivered, by mistake or under
coercion, must repay or return it.”
17.As an illustration of such payment which was ordered to be returned, he
cited the case of Sri Sri Shiba Prasad Singh Vs. Maharaja Srish Chandra
Nandi A.I.R. (36) 1949 Privy Council 297 which is the case of Mining
lease entered into by the parties under which the lease rent was specified.
The parties expected the freight to come down after a new railway line was
to be constructed. The parties provided for the rate of reduction of the rent
upon expected specified rates of reduction in freight. There were 2 separate
lease rents that would be paid depending upon the extent of the reduction
in freight. The Lessee paid the enhanced royalty under a mistake though
the freight payable to the Railway was reduced. This was, therefore, paid
under a mistake of fact as to the extent of freight payable. The Lessee then
sought appropriation in the account with the Lessor with regard to the
payment of royalty. The clause in the Lease between the parties was
required to be interpreted. It was held that the Lessee was unaware of his
right under the Lease. Considering the distinction between the applicability
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of Section 21 and 72 of the Contract act and the mistakes of fact and law,
it was held that the mistake in that case was “thinking that the money paid
was due, while in fact it was not due”. It was held that even if this was the
mistake of law the contract must stand and would be enforceable unless
the Plaintiff was disentitled on principles of estoppal and the like. It was
observed that in that case the money was paid under the belief it was
legally due and that belief was mistaken. The case fell under Section 72
and the amount was payable. It must be appreciated that the payment in
that case was not to be made under the contract which was void under
Section 23 of the Contract Act. ig
18.Mr. Andhyarijuna contended that the mistake under Section 72 is the
mistake of fact as well as law as laid down in various judgments and if a
party enters into agreement under a mistake of law also the agreement
would not be void. (See The Sales Tax Officer, Banaras Vs. Kanhaiya Lal
Makund Lal Saraf A.I.R. 1959 S.C.135 (V 46 C20); Kleinwort Benson
Ltd. Vs. Lincoln City Council 2 A.C. 349; also Shibu Prasad Singh Vs.
Srish Chandra Nandi A.I.R 1949 P.C 297 and Steel and Wire Products
Ltd. Vs. Superintendent of Commercial Taxes A.I.R. 1957 Patna 112).
19.The law laid down in these judgments indeed is that a mistake of law is
also covered for suing under Section 72 of the Contract Act. However what
is mentioned is the act of the parties under a “mistake” of any law. A
“mistake” by its very meaning as shown in Black’s Law Dictionary Eighth
Edition at page 1022 is:
An error, misconception or misunderstanding; an erroneous belief. A
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11mistake of law is shown to be a mistake about the legal effect of a
known fact or a situation – Also termed error in law; error of law. It
is, therefore, some act done without knowledge of the Law.
A mistake is explained in Advanced Law Lexicon by P. Ramanatha Aiyar
Third Edition Volume 3 page 3037 is :
An unconscious ignorance or forgetfulness of a fact, past or present,
material to the contract, or a belief in the present existence of a thing
material to the contract, which does not exist; some intentional act,
omission, or error arising from ignorance, surprise, imposition, ormisplaced confidence……
Mistake of law explained in Advanced Law Lexicon by P. Ramanatha Aiyar
Third Edition Volume 3 page 3038 is:
A mistake of law occures when a person having full knowledge of
facts comes to a erroneous conclusion as to their legal effect.
20.None can “mistake” a Law which is known. Hence if the party knows that
an act is prohibited by any law, he cannot be taken to have mistaken that
there was no such law and committed his act. He does that act knowing it
to be unlawful. He then violates Section 23 of the Contract Act. Hence
under Section 72 if the parties act under a mistaken belief that the act is
lawful and valid, she/he would fall within the protective umbrella of
Section 72 to undo the damage done to her/him by such act. If however a
party acts upon the knowledge that the act she/he does is void as being
unlawful under any law he cannot be protected by and under Section 72.
She/he would fall within the mischief of Section 23 instead. Taking all the
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acts, whether known or unknown, by the parties as granting protection to
such party for recovery of amounts paid under such contracts, would
render the aforesaid part of Section 23 otiose and would be contrary to the
known meaning of the term “mistake”. The contract of the parties must be
considered to see the mistake or knowledge.
21.Further Mr.Andhyarijuna claimed repayment of the amount paid to the
Society by the Respondent under Section 72 of the Contract Act as having
been paid under coercion. Coercion as defined in Section 15 of the
Contract Act itself is :
“unlawfully detaining of a person with the intention of causing
such person to enter into an agreement.”
22.Coercion would impinge upon the free consent of the party being coerced.
The contract entered into upon such coercion would not be a valid contract
since it was devoid of free consent. Consequently, it would be voidable, as
being without free consent at the option of the party giving the consent,
under Section 19 of the Contract Act. It, therefore, follows as a matter of
corollary that if the consent was free consent that contract would be a valid
contract. It is only because it is without free consent that it is allowed to be
avoided by the aggrieved party whose consent was obtained under
coercion. Consequently, therefore, when the Respondent claims that she
entered into a contract under coercion of the Society (or its Chairman) she
claims that she was unlawfully detained with an intention of causing hurt
to enter into the contract which she entered into without her free consent.
And consequently, therefore, if she had freely consented, that contract
would have been a valid contract. The amount in excess of Rs.25000/-
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paid to the Society would be vitiated only if it is paid under coercion i.e
without the (free) consent of the Respondent. It is one thing to pay under
coercion and quite another to pay under a mistake of Law. In the former
there is no mistake; the payment can be avoided by the party paying under
a contract which is voidable at her/his option. In the latter there is no
question of coercion. The Respondent claims under both these aspects of
Section 72 of the Contract Act.
23.It would, therefore, have to be seen :
1. Whether the Respondent knew at the time she made payment
to the Society in July 1992 that the amount paid by her was fortransfer of the shares and the premises of the Society from
Khimji to her which was an illegal payment or whether she
knew at that time that it was only the amount payable to theSociety towards repair fund.
AND
2. Whether the coercion as defined under Section 15 of the
Contract act was practiced upon her to part with that amount.
24.Mr. Andhyarujina has sought to show from the agreement between the
Respondent and Khimji and the correspondence that ensued thereafter
between the Respondent and the Society, Khimji and the Society, as well as
by the Respondent and Khimji with other legal authorities that the
Respondent only learnt in August 1994 that the amount which the
Respondent paid to the Society by way of transfer fee, but in the guise and
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name of the building repair fund under coercion of the Society was an
illegal payment which the Society was not entitled to receive. Was the
Respondent acting under a mistake of Law ? OR was she acting under
coercion ? Was the contract void or voidable or neither ?
25.On 30th March 1992 the Respondent entered into an agreement for sale of
the premises with Khimji who was then a member of the Society. The
agreement sets out the various covenants between the parties for the sale
of the flats, the requirement of completing and signing the requisite
transfer forms for transfer of the shares of the premises to the name of the
Respondent and executing a Deed of transfer for effectively transferring the
shares of the premises to her. It shows Khimji to be a member of Society
and holding 2 shares therein under Share Certificate Nos.23 and 24 and as
such member occupying the aforesaid two flat Nos.24 and 25 with
attached adjoining terraces on the 7th floor of the Society building and
entitled to 5 car parking spaces Nos.29,30,31,32 and 33 in the compound
of the Society.
26.Clause 1 of the agreement sets out the consideration agreed to be paid by
the Respondent to Khimji being Rs.3 Crores for the two flats and Rs.21
lakhs for the 5 car parking spaces aggregating to Rs.3.21 Crores.
27.Under Clause 3 of the agreement the parties agreed to make application
before the Income Tax authority for sale and transfer of the shares and the
premises to the Respondent.
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28.Under Clause 4 of the agreement the parties agreed that Khimji would
make an application to the Society for obtaining its N.O.C for the sale and
transfer of the shares and the premises to the Respondent. It is further
agreed that if the Society does not grant such N.O.C Khimji would refund
the earnest money paid by the Respondent without interest.
29.Under Clause 5 of the agreement the sale was to be completed within 15
days of the aforesaid premises being obtained and a Deed of Transfer was
to be executed by Khimji in favour of the Respondent.
30.The agreement also recites various declarations and covenants with only
one of which this Petition is concerned i.e. Clause 7(viii) under which the
parties agreed to pay the Society ½ the amount of transfer fee each
prescribed by the Society which, as per the bye-laws then in force, came to
3% of the consideration amount.
31.The parties signed the execution clause of the agreement in the presence of
their respective Advocates and Solicitors. Khimji has acknowledged the
receipt of the earnest amount of Rs.15 lakhs.
32.The Respondent has shown the unregistered and inadequately stamped
type-written copy of the agreement without the relevant stamp papers as
well as the docket thereon.
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33.This lis has arisen from the aforesaid clause 7(viii) under which the parties
agreed to pay the transfer fee @ 3% of the consideration amount equally
by them which payment was then illegal.
34.As agreed in Clause 4 of the agreement dated 30th March 1992 Khimji
applied to the Society for obtaining its N.O.C for the sale and transfer of
the shares and the premises to the Respondent by his letter dated 9 th April
1992. Similarly the Respondent made her application to the Society to be
admitted as a member on 9th April 1992. They both enclosed a copy of the
agreement dated 30th March 1992. They both mentioned about the
permission required from the Income Tax Authority. Whereas Khimji agreed
to pay the necessary transfer fee to the Society, the Respondent agreed and
undertook to abide by the bye-laws of the Society. Consequently they
applied for permission for the sale and transfer of the shares and premises
to the Respondent.
35.Similarly as per Clause 3 of the agreement the parties made a joint
application to the Income Tax Authority for sale and transfer of the shares
and premises to the Respondent. The Income Tax Authority called for
certain particulars. Khimji’s Attorneys replied the Income Tax Authority. In
their letter dated 20th April 1992, they made a specific mention of the
transfer fee payable to the Society which was 3% of the consideration
amount mentioned in the agreement for sale which came to Rs.9.63 Lakhs.
The Khimji’s Attorneys further mentioned that the application to the
Society for seeking permission for the sale and transfer of the flats was
made by the Respondent and the Society would be issuing its N.O.C in due
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course. They further mentioned that the exact amount of transfer fee
would be intimated by the Society at the time of issue of N.O.C in writing.
The details of the amount of transfer was as agreed between the parties in
clause 7(viii).
36.The Society by its letter dated 21st May 1992 addressed to Khimji,
concerning the sale and transfer of the aforesaid premises, recorded that
there were meetings held between the Society’s Chairman and the
constituted Attorneys of Khimji and the Respondent. The modalities and
procedures regarding transfer and/or the contribution by Khimji as the
then member were clarified and agreed upon. The Society recorded its no
objection to transfer the said premises to the Respondent subject to
compliance of several conditions. The Society recorded their appreciation
of the Respondent as the incoming member for her willingness and
“gracious contribution of Rs.9.63 lakhs towards building maintenance and
repair fund”. The Society specified that the payment “should be made
prior to taking possession of the flats or on or before 19th July 1992”.
37.The Respondent paid her cheque of Rs.9.63 lakhs on 8th July 1992 as the
“gracious contribution towards the building maintenance and repair funds
etc.” under her letter of that date annexing thereto various documents
required by the Society as also her cheque for Rs.9.63 lakhs dated 11th July
1992. The Respondent called upon the Society to transfer the shares and
the flats together with the car parking spaces to her name and return the
share certificates duly transferred to her name and issue her a receipt for
Rs.9.63 Lakhs.
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38.The Society transferred the share certificates in the name of the
Respondent on 22nd July 1992 and thus admitted the Respondent as
member of the Society. The Society encashed the cheque on 22nd July 1992
and passed its receipt in favour of the Respondent for Rs.9.63 lakhs on 27th
July 1992 received towards “building repair fund”.
39.The entire transaction for the sale and transfer of the shares and the
premises agreed to be purchased by the Respondent was thus effectuated.
40.It can be seen that the Respondent was herself aware of, or had obtained
the requisite legal advise with regard to the compliance of various
requirements of the Society as well as legal authorities upon purchase of
the flats by her. She knew about the application to be made before the
Income Tax Authority for obtaining its permission, she knew about the
application to be made to the Society setting out the precise amount of Rs.
9.63 lakhs which ultimately came to be paid by her to the Society, she also
knew about the requirement of completing and signing the transfer forms
as well as the Deed of Transfer for transfer of shares and the premises in
her name. The agreement is seen to have been drafted by the Advocate and
Solicitor, the absence of docket notwithstanding. It is witnessed by him.
Each of the legal requirements in an agreement to transfer a flat in a Co-
operative Society is shown to be complied with. The parties have entered
into a transfer of a large immovable property of considerable value. They
are not expected to have acted without legal advice and without the
knowledge of the provisions of various laws relating to the transfer. Laws
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including the Transfer of Property Act, the Registration Act, Income tax Act
and the Rules, Maharashtra Co-operative Societies Act and Rules (though
not the Stamp Act !) are seen to have been considered and acted upon. The
very extent of the transaction (the purchase of the flats for Rs.3.21 Crores
in 1992) shows that the Petitioner availed herself of all the requisite legal
advise and was informed about and acquired knowledge about all the
relevant laws at that time in force.
41.The correspondence entered into by Khimji as well as the Respondent with
the Society further shows the Respondent’s knowledge of the requisite
laws. The Society’s letter dated 21st May 1992 shows meetings held by the
parties with regard to the “transfer fee and/or contribution” to be
paid/made to the Society. It shows that the Society’s position was clarified
and that position was agreed upon by the Respondent’s husband as her
constituted Attorney who attended the meeting on her behalf. It shows the
gracious contribution which is enjoined to be made prior to taking
possession of the flats by the Respondent or prior to 19th July 1992. It
shows that gracious contribution was the condition precedent for the
transfer of the shares and the flats to the Respondent. The letter shows
that this payment was the transfer fee and/or contribution. This case is
much like the case of Kuju Collieries Ltd (supra) and the observations
relating to knowledge of Law made in that judgment lend themselves to fit
this case like a glove.
42. The period during which it was paid is also a pointer to its known
illegality – it was to be paid at least before 19th July 1992 which was
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before the next A.G.M. The transfer of the shares and the flats to her would
be decided at the A.G.M if the transfer fee was paid prior thereto. The
Respondent accepted the illegal offer of the Society by performance – she
paid Rs.9.63 lakhs under her letter dated 8th July 1992. The Society
resolved to transfer the flats in her name consequent upon such illegal
payment made knowing it to be illegal. The Society transferred the share
certificate and issued the receipt camouflaged as contribution to the repair
fund thereafter.
43.On 9th August 1992 the Society held its A.G.M in which it acknowledged
the payment received from the Respondent being 3% of the sale value of
the flats purchased by her. The Society resolved that 3% of the sale value
must be asked from every new member admitted to the Society towards its
repairs and maintenance fund. This resolution shows that such payment
was until then not received by the Society or demanded from the new
members. The Respondent contends that under an earlier resolution of 9th
February 1986 the new members were required to pay the specified
percentage of the sale amount to the Society. Even if that be so, it is an
illegal payment demanded by the Society and an illegal payment made by
the new members being contrary to bye-law No.40 cited above.
44.It so happened that the flats purchased by the Respondent had certain
leakages requiring the Respondent to call upon the Society to attend to
those leakages by several of her letters. The first of such letters was
written on 30th July 1992 by the Respondent to the Society. It referred to
acute water shortage, leakage problem and the problem of white ants. The
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Respondent called upon the Society to do water proofing work and
requested to take remedial steps. It did not mention of the gracious
amount of Rs.9.63 lakhs paid towards repair fund; it did not make a
demand that her flats be repaired from the proceeds of the fund. Similar
letter was written on 17th November 1993.
45.It was only in April-May 1994 that, the Respondent changed her stance. In
letter dated 25th April 1994 to the Society she stated that she would get the
terrace tarred and demanded reimbursement of the costs of “this
temporary arrangement”. She also called upon the Society to reimburse
her for previous repair work under a bill sent by her to the Society.
46.In the letter dated 14th May 1994 she stated that she paid Rs.9.63 lakhs
under one of the conditions laid down by the Society in their letter dated
21st May 1992. She demanded to know from the Society if the Society had
charged other members such an amount for transferring the flats, how
many flats have been transferred, the amount received under such transfer
and how they were spent. She mentioned in that letter that the amount
was paid before transferring the flats in her name. The tenor of that letter
implicitly shows that it was paid as transfer fee. The reply of the Society
dated 30th May 1994 to the Respondent’s letter dated 14th May 1994 shows
that the amount paid at the time of transfer of flats is “without any strings”
denoting that amount paid by the Respondent was transfer fee simplicitor.
47. The Respondent claims to have received knowledge of the illegality of the
transaction in about August 1994 when she issued her Advocate’s notice
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dated 11th August 1994 to the Society demanding the repayment of Rs.9.63
lakhs with interest @ 21% from the date of the payment made by her till
repayment by the Society and other amounts for certain repairs. She
claimed in the notice that the Society forced, coerced and pressurised her
to make the payment at the time of the transfer of the shares to her name
in the guise of the building repair and maintenance fund. She contended
that that was illegal amount of transfer fee made under the transfer of the
shares to her name, leaving no option but to make payment and
consequently it was illegally extorted by the Society.
48.The reason for her changed stance is not far to see. The Respondent put
up some unauthorised construction on the terraces of her flats. She
enclosed them. She consumed additional F.S.I without the permission of
the Society. The Society has written 3 letters to her on 4th May 1994, 7th
June 1994 and 17th June 1994 which have remained unreplied and
uncomplied. In these letters the Society set out the undertaking given by
the Respondent at the time of the transfer of the flat and showed its breach
by putting up additions and making alterations in her premises. The
Society called upon her to remove the additions, demanded inspection of
her premises and even sent the copy of the sanctioned plan demanded by
her showing the open terraces. Since none of these was heeded, the
Society resolved to file a dispute and obtain orders against the Respondent
in their Managing Committee Meeting dated 11th June 1994.
49.Thereafter, for the first time, the Respondent alleged coercion in her
Advocates notice dated 11th August 1994.
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50.It is for the Respondent to prove the coercion that she alleged. She has led
evidence in that behalf. Aside from the oral evidence of her constituted
Attorney, no other independent evidence of coercion is produced by her.
The evidence inter alia shows that the number of meetings were arranged
and held between the Chairman and Secretary of the Society, Khimji and
the Respondent’s constituted Attorney at the time she entered into the
contract and sought transfer of membership to herself. The evidence shows
what was told by the Society Chairman and the Secretary to the
Respondent’s constituted Attorney. It also shows that the Respondent was
represented by her Attorney at the time of the agreement and thereafter.
The Attorney has witnessed the agreement. The evidence also shows that
the Respondent has not asked anything in writing from the Society; the
Respondent was orally asked to pay 3% of the total value of the flats as per
a resolution passed at the A.G.M dated 9th February 1986 for which the
Respondent had not taken legal assistance. The Respondent had not
objected for the contribution/transfer fee etc. The evidence shows that the
gracious contribution was mentioned in the letter dated 8th July 1992 as
the Society compelled them to write so in that letter. The letter dated 8th
July 1992 is a type-written letter annexing 7 documents.
51.It is upon this evidence that the Respondent seeks to prove coercion
practiced upon her. The aforesaid oral and documentary evidence, if
appreciated show that there was no coercion practiced upon the
Respondent. The Respondent entered into the contract of her free will.
She paid the amounts to the Society under an incorrect misleading
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description. She knew that she was required to pay nothing other than
“transfer fees”, the expression used since her initial agreement dated 30th
March 1992. Knowledge of the fact that the transfer fees was illegal and
could not have been paid as such must, therefore, be imputed upon her.
That knowledge is reflected from the very inception when she signed the
agreement dated 30th March, 1992 under legal advise and in the presence
of her Solicitor. The meetings held between the parties show deliberation
and thought. The presence of her attorneys rule out coercion. The
Resolution of 9th February 1986 shows the Society’s practice. Her letter
dated 8th July 1992 annexing all the required documents could not have
been written under detention. It does not even show any prejudice caused
to her; in fact it caused immediate transfer of the shares and premises to
her and gave her the status of a member, which she would have otherwise
to fight for. The requirements of coercion as defined in Section 15 of the
Contract Act are far from being satisfied.
52.Not only the agreement itself and the correspondence that ensued
thereupon but also the further otherwise unrelated and innocuous
correspondence relating to the leakage in the Respondent’s flat as also the
Respondent’s ultimate notice show that the Respondent paid transfer fee to
the Society knowing it to be an illegal payment.
53.The payment made under the contract with the Society by the Respondent
as agreed between the Respondent and the Society reflected in the
aforesaid correspondence as well as between the Respondent and Khimji as
reflected in the aforesaid agreement of sale shows that the contract was
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entered into and completed by performance though it was illegal at the
relevant time. Such a contract is void from the very inception under
Section 23 of the Indian Contract Act – it is made with knowledge of the
legal position. It does not happen to have been void. It is not later
discovered to be void. It was not executed under a mistake of what the
Law is. It is completely covered by the judgment of the Supreme Court in
the case of Kuju Collieries Ltd supra. It does not fall within the protective
ambit of Section 65 and Section 72 of the Contract Act. The flats were to
be purchased upon the illegal condition. The Respondent succumbed to
the illegality. She failed to keep a straight bat. This was despite the
knowledge of law derived from the legal advice that she obtained. If the
contract was illegal the Respondent need not have been coerced to enter
into such a contract. She could have resisted the illegality. She could have
refused to make the illegal payment. She could have applied under Section
22 of the Maharashtra Co-operative Societies Act for transfer of
membership without making the illegal payment. She chose not to do so.
She chose the illegal way of getting the shares and the premises transferred
in her name. Had she applied as per procedure established under the
aforesaid law, the Society would have been enjoined to admit her as
member. It could not have refused membership upon the refusal to pay
transfer fee in excess of the legally prescribed amount under Section 23 of
the Act. But the Respondent chose an easier option. She paid the illegal
amount in consideration of which she expedited her transfer and
membership status. The consideration being unlawful, the contract is void.
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54.The payment of transfer fee to the Society of such a large amount which is
by way of percentage of the sale price is illegal under the Co-operative
Societies Act and the model bye-laws issued thereunder being model bye-
law No.40 adopted by the Society as their bye-laws. The premium required
to be paid to the Society is allowed up to the maximum amount of Rs.
25,000/- only. Any amount in excess of that payment is, therefore, illegal
contribution. The only exception under the aforesaid bye-laws is the
donation which would be given only with the consent of the member.
Hence if the amount is taken to be not the illegal transfer fee, but donation
in the name of contribution to the Society towards the repair fund, it would
be a valid contract. It could then be avoided as voidable at the option of
the Respondent only if she proved the coercion alleged. The intrinsic oral
as well as documentary evidence unmistakenly shows lack of that vitiating
factor. The Respondent having sent the typewritten letter dated 8th July
1992 annexing as many as 7 documents shows that the latter was not
prepared under detention. The circumstantial evidence points to the
irresistible conclusion of lack of any coercion. In that case the valid
donation given by the Respondent to the Society cannot be refunded or
repaid to her.
55.Consequently it is seen that knowing this precise legal position the
Respondent, Khimji as well as the Society contracted for Rs.9.63 lakhs
which was paid and received as and by way of transfer fee for transferring
the shares and the premises purchased by the Respondent in the name of
the gracious contribution made by the Respondent as directed by the
Society. The illegal payment of transfer fee was made in the garb of the
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legal payment of contribution stated to be gracious contribution of the
Respondent. Any which way one sees the transaction, it gives the
Respondent no leevay for backtrackking, the tenacious and erudite
exposition of the Law of Contracts made by Mr. Andhyarijuna
notwithstanding.
56.The Respondent’s dispute relating to declaration that the demand and
collection of the amount of Rs.9.63 lakhs was illegal and for an order and
decree for repayment of that amount with interest at 24% p.a from the
date of payment by her till the date of realisation and other incidental
reliefs is under a contract which was void from the inception being
forbidden by the Law of Co-operation and not void due to incapacity to
contract 20, 21 or 22 of the Contract Act. She cannot, therefore, claim to
be restored the illegal consideration that passed under her void contract in
a Court of Law. Consequently, the Respondent could not be restored or
repaid or returned the amount she paid as an illegal consideration to the
Society knowing it to be illegal under Sections 65 or 72 of the Contract Act.
57.It is this aspect that both the impugned orders have not considered. The
impugned orders, therefore, fall foul of the law relating to contracts which
are void ab initio and the restitution of the advantage thereunder. There
has been a fundamental error in appreciating this legal position in the
impugned judgments. In fact the impugned judgments show the
acceptance of a case of deemed coercion, a concept unknown to Law of
Contracts. The learned Co-operative Court fell in a material error in
considering Society’s admission that no repairs were required to be carried
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out at the time of the Respondent’s transaction in 1992. The observations
in the impugned judgments that there is always an element of force in such
transactions to conclude that in this case the Respondent was in fact
coerced to make illegal payment to the Society fails to consider her
knowledge and agreement with Khimji under legal advise to pay 3% of the
consideration as transfer fee before the Society was at all involved in the
transaction. The judgments relied upon by Mr. Andhyarijuna to require the
Court’s restricted interference would not apply to desist from interfering
with the impugned judgments. Since it is not on facts, but on the effect of
those facts upon enunciation of the law applicable to such facts that the
present Writ Petition is considered. In the case of A. Raghavamma Vs.
Chenchamma A.I.R. 1964 S.C. 136 the Supreme Court considered how
restricted its jurisdiction in Appeal would be upon findings of fact. At page
142 it observed thus:
“The reason for the practice is stated to be that when facts have
been fairly tried by two Courts and the same conclusion has been
reached by both, it is not in the public interest that the facts
should be again examined by the ultimate Court of appeal.
Whatever may be the reason for the rule, the practice has become
fairly crystallized and this Court ordinarily will not interfere withconcurrent findings of fact except in exceptional cases, where the
findings are such that it “shocks the conscience of the Court or by
disregard to the forms of legal process or some violation of some
principles of natural justice or otherwise substantial and grave
injustice has been done”. It is not possible nor advisable to definethose circumstances. It must necessarily be left to the discretion
of this Court having regard to the facts of a particular case.”
(underlining supplied)
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58.The facts shown in the evidence, which are not even contested, the
construction and interpretation of the contract of the parties, followed bythe correspondence that ensued, requires to be parsed within the ambit of
the applicable law, hitherto not considered.
59.Consequently, the judgment of the Learned Co-operative Court as well as
the Learned Co-operative Appellate Court are required to be set aside. The
award passed under the judgment dated 10th September 2003 and
confirmed in appeal under the judgment dated 28th October 2003 are set
aside. Rule is made absolute accordingly with costs of Rs.10,000/-.
(SMT.ROSHAN DALVI, J.)
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