Valid liquidator arrangements bar recovery under Sections 72 and 65 when payments were made under binding compromise agreements.

Money paid or applied under a valid compromise or binding arrangement made by an authorised liquidator cannot be recovered under Sections 72 or 65 of the Indian Contract Act merely because a later challenge asserts that the underlying transaction was void or illegal. The Bombay High Court treated the liquidator's dealings with the defendants over blankets and cotton bales as valid and binding, supported by the surrounding correspondence and conduct, and held that the payments were neither made under a void arrangement nor by mistake. It further noted the validating effect of the Enemy Trading Act, 1916, and upheld the defendants' counter-claim based on the agreed application of sale proceeds.

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Issues: (i) Whether the plaintiffs could recover the sale proceeds under Section 72 or Section 65 of the Indian Contract Act, 1872. (ii) Whether the Liquidator's arrangements with the defendants regarding the blankets and cotton bales were valid and binding so as to sustain the defendants' counter-claim.

Issue (i): Whether the plaintiffs could recover the sale proceeds under Section 72 or Section 65 of the Indian Contract Act, 1872.

Analysis: The agreements entered into by the Liquidator with the defendants were treated as valid contracts made by a person competent to deal with the assets. The payments to the defendants were therefore not payments made under a void arrangement, nor were they established to have been made by mistake within the meaning of Section 72. Section 65 also did not apply because the payments were made under valid agreements, not under an agreement discovered to be void or a contract that had become void.

Conclusion: The plaintiffs were not entitled to recover the sale proceeds under Section 72 or Section 65, and this issue was decided against the plaintiffs.

Issue (ii): Whether the Liquidator's arrangements with the defendants regarding the blankets and cotton bales were valid and binding so as to sustain the defendants' counter-claim.

Analysis: The Liquidator had authority to deal with the assets in the winding up. The arrangements with the defendants, including the application of sale proceeds towards the defendants' claim and the treatment of the cotton bales, were supported by the surrounding correspondence and conduct and were binding on the present Liquidator. The Court also noted the validating effect of the Enemy Trading Act, 1916, and the powers available in the winding-up regime for dealing with hostile firms' assets and creditor claims.

Conclusion: The defendants' counter-claim was upheld, and the issue was decided in their favour.

Final Conclusion: The appeal failed in its entirety because the plaintiffs could not recover the proceeds, while the defendants' claim to retain the agreed amounts was sustained on the footing of valid and binding arrangements made by the Liquidator.

Ratio Decidendi: Money paid or applied under a valid compromise or binding agreement made by an authorised liquidator cannot be recovered under Sections 72 or 65 of the Indian Contract Act, 1872 merely because the payer later asserts that the underlying transaction was void or illegal.

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