Invalid mortgage security and later-discovered voidness can still support restitution under Section 65 without a separate plea.

A mortgage executed during the subsistence of the Collector's statutory control over the execution-sale process was invalid because no written permission was obtained, and the disability under paragraph 11 of Schedule 3 to the Code of Civil Procedure continued until the sale could be confirmed. Although the security was void, restitution under Section 65 of the Indian Contract Act was still available because the voidness was discovered only after the suit, the claim was not time-barred, and there had been no unequivocal affirmation of the transaction. A separate pleading on Section 65 was not treated as fatal where the issue was already within the controversy and no prejudice was shown.

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Issues: (i) Whether paragraph 11 of Schedule 3 to the Code of Civil Procedure rendered the mortgage executed on 12 August 1919 incompetent and therefore invalid as security; (ii) Whether, despite the invalid security and absence of a specific pleading in the plaint, the appellants were entitled to restitution under Section 65 of the Indian Contract Act, 1872.

Issue (i): Whether paragraph 11 of Schedule 3 to the Code of Civil Procedure rendered the mortgage executed on 12 August 1919 incompetent and therefore invalid as security.

Analysis: The relevant disability continued so long as the Collector retained powers and duties connected with the execution sale and confirmation process. Those powers did not end merely because the property had been ordered for sale or because some villages had been sold first. The period for applications to set aside the sale remained open until the sale could be confirmed, and the Collector's functions in relation to the sale were still operative on 12 August 1919. No written permission by the Collector was shown.

Conclusion: The mortgage was hit by paragraph 11 of Schedule 3 and was invalid as security.

Issue (ii): Whether, despite the invalid security and absence of a specific pleading in the plaint, the appellants were entitled to restitution under Section 65 of the Indian Contract Act, 1872.

Analysis: The right under Section 65 arose when the agreement was discovered to be void. In the special circumstances of the case, the invalidity of the transaction was not discovered at the time of its execution but only after the suit had been filed. Limitation did not bar the claim, and the appellants had not by their conduct unequivocally affirmed the transaction. The objection that Section 65 had not been separately pleaded was treated as too rigid, especially because the respondents could not show any real prejudice and the issue was already within the controversy created by the pleaded defence that the mortgage was void.

Conclusion: The appellants were entitled to restitution under Section 65, and the absence of a separate plea did not defeat relief.

Final Conclusion: The decrees of the courts below were set aside and the appellants were granted a decree for repayment of the loan amount with interest, subject to credit for payments already made.

Ratio Decidendi: Where a secured loan transaction is held void because the security is invalid, and the voidness is discovered only later in special circumstances, the lender may recover by restitution under Section 65 if the claim is not barred and there has been no unequivocal affirmation of the transaction.

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