Ultra vires lottery-based scheme: contributors may recover only the unreached balance after deductions for prizes, charity, and expenses.
A bond and certificate scheme was analysed as being outside the company's memorandum because the fund could be raised only in the prescribed manner, and the lottery-based machinery used for the bonds did not fall within those powers. The scheme was also unlawful because it necessarily involved a lottery without Government authority, attracting the statutory bar on such arrangements. Contributors were not treated as in pari delicto to the extent the legislation protected them, so recovery depended on how far the money had been applied. Amounts already paid out in prizes, loans, or valid charitable allocation were not recoverable; only the remaining identifiable balance was available for proportionate restitution after deductions.
Issues: (i) Whether the bond scheme was ultra vires the company's memorandum. (ii) Whether the contributors to the certificate and bond schemes, or classes of them, were entitled to recover their subscriptions notwithstanding illegality arising from the lottery element and the part performance of the scheme.
Issue (i): Whether the bond scheme was ultra vires the company's memorandum.
Analysis: The memorandum authorised the raising of a special donation fund only in the manner there prescribed, namely by subscriptions of Rs. 50 or multiples thereof. The bond scheme was structured as a lottery-backed inducement, with small subscriptions feeding a scheme that did not conform to the prescribed method of constituting the special fund. Although the ultimate object was to enrich the fund, the contractual machinery by which the bonds were issued did not fall within the powers conferred by the memorandum.
Conclusion: The bond scheme was ultra vires.
Issue (ii): Whether the contributors to the certificate and bond schemes, or classes of them, were entitled to recover their subscriptions notwithstanding illegality arising from the lottery element and the part performance of the scheme.
Analysis: A scheme which necessarily involved a lottery was unlawful unless Government authority was shown, and the statutory bar under the law relating to lotteries made the object unlawful within the meaning of the Contract Act. Even so, the contributors were not treated as being in pari delicto in the relevant sense, because the statutes aimed at lotteries were designed to protect them. Recovery, however, depended upon the stage reached and the extent to which the company had already dealt with the money. Amounts already paid out in prizes or loans, and sums already irretrievably applied in accordance with the charitable part of the scheme, could not be reclaimed. By contrast, contributors who had merely paid in and had not received the contemplated benefit were entitled to proportionate restitution, subject to deduction of the charitable portion and expenses. Those who had contributed to the earlier Mysore company, and those who had actually drawn and received prizes, were not entitled to recover.
Conclusion: The contributors were entitled only to limited restitution on the basis stated, and not to full recovery of the whole of their payments.
Final Conclusion: The court upheld the charitable portion already applied, treated the bond scheme as ultra vires, and directed a proportional return of the remaining recoverable subscriptions to eligible contributors after deductions for sums already paid out, expenses, and the charitable allocation.
Ratio Decidendi: Money paid into an ultra vires or lottery-based scheme may be recovered by contributors who are not in pari delicto only to the extent that the money remains identifiable or has not already been applied, and any part of the fund already validly earmarked for charity or already paid out cannot be reclaimed.
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