1991 (2) TMI 399 - SC - Companies Law

Supreme Court Upholds Decision: Agreement Against Public Policy Unenforceable

RATTAN CHAND HIRA CHAND Versus ASKAR NAWAZ JUNG (DEAD) BY L. RS. AND ORS.

The Supreme Court upheld the lower courts' decision that the agreement between the plaintiff and the Nawab was against public policy, rendering it ... Whether the plaintiff is entitled to an amount of ₹ 75,000 which according to him he had actually advanced and the respondents had received for the purpose of prosecuting their litigation? Whether the advance in question was opposed to public policy Held that:- The agreement itself stipulated that on the successful establishment of the claim, the Nawab would not only return the said advance but would also pay to the plaintiff consideration for the said advance. That consideration was agreed to be at the rate of one anna in a rupee. It is, therefore, apparent on the face of the record that the advance and the share in the estate, were a part of the same contractone as a consideration for the other. The two stand together and none can stand without the other. Hence, I am not impressed by the contention advanced by Shri Shah for the appellant that the amount of ₹ 75,000 which was advanced by the appellant can be separated from the other agreement or could be treated differently. Thus in agreement with the High Court that the agreement has to be treated as a whole and the two parts, viz., the advance and the consideration for the same cannot be separated from each other. The parties had entered into the agreement in question with the avowed purpose that the plaintiff would use his then prevailing influence with the worthies in the Government to secure the gains for the Nawab. The Court On this evidence came to the conclusion that the agreement was nothing but one obviously made to lend services as a 'go-between' or a 'carrier' for commission. This being so, it was against public interest and detrimental to the health of body politic. A bargain whereby one party is to assist another in recovering property and is to share in the proceeds of the action and such assistance is by using the influence with the administration, irrespective of the fact that the persons intended to be influenced are not amenable to such influence is against protection and promotion of public welfare. It is opposed to public policy. In this view, we would hold that the plaintiff cannot enforce the agreement to recover the amount from the respondents. Appeal dismissed. Issues Involved:1. Entitlement of the plaintiff to recover Rs. 75,000 advanced to the Nawab.2. Validity of the agreement dated June 27, 1952, under public policy.3. Applicability of Sections 23, 65, 69, 70, and Part (ii) of Section 73 of the Indian Contract Act.4. Applicability of Section 84 of the Indian Trusts Act, 1882.5. Interpretation of public policy in the context of champertous agreements.Issue-wise Detailed Analysis:1. Entitlement of the plaintiff to recover Rs. 75,000 advanced to the Nawab:The plaintiff advanced Rs. 75,000 to the Nawab for prosecuting his claim to a share in the estate of Nawab Salar Jung III. The City Civil Court and the High Court found that the agreement was genuine, the amounts were indeed advanced, and the suit was not barred by limitation. However, both courts concluded that the agreement was opposed to public policy, rendering it unenforceable. Consequently, the plaintiff could not recover the Rs. 75,000 advanced.2. Validity of the agreement dated June 27, 1952, under public policy:The agreement stipulated that the plaintiff would advance funds to the Nawab and, in return, receive one anna share in the estate. Both the City Civil Court and the High Court found that the agreement was opposed to public policy. The courts concluded that the agreement's object was for the plaintiff to wield his influence with Central and State Ministers to have the Nawab recognized as an heir. Such an agreement was deemed to introduce corruption in public life, making it unenforceable.3. Applicability of Sections 23, 65, 69, 70, and Part (ii) of Section 73 of the Indian Contract Act:Section 23 of the Indian Contract Act states that the consideration or object of an agreement is lawful unless it is forbidden by law, fraudulent, or opposed to public policy. The courts found the agreement to be opposed to public policy. Section 65 requires restitution for any advantage received under an agreement discovered to be void. Sections 69 and 70 provide for reimbursement and compensation for benefits conferred. However, the courts held that since the agreement was tainted by public policy, these provisions did not entitle the plaintiff to recover the advanced amount.4. Applicability of Section 84 of the Indian Trusts Act, 1882:Section 84 states that if the owner of property transfers it for an illegal purpose and the purpose is not carried into execution, the transferee must hold the property for the benefit of the transferor. The plaintiff argued that even if the agreement was champertous, the amount advanced should be recoverable under this section. However, the courts held that the agreement's object was to influence public officials, making the entire contract void and unenforceable.5. Interpretation of public policy in the context of champertous agreements:The courts referred to various legal precedents and statutory provisions to conclude that the agreement was against public policy. They emphasized that public policy must evolve with societal needs and that contracts introducing corruption or influencing public officials are detrimental to public welfare. The courts rejected the plaintiff's contention that the champertous nature of the agreement should be ignored, holding that the agreement's object was inherently opposed to public policy.Conclusion:The Supreme Court upheld the concurrent findings of the City Civil Court and the High Court, dismissing the appeal. The courts concluded that the agreement was opposed to public policy, and the plaintiff could not recover the Rs. 75,000 advanced. The judgment emphasized the evolving nature of public policy and the courts' duty to safeguard public welfare by striking down contracts that introduce corruption or influence public officials. The appeal was dismissed with no order as to costs.