TaxTMI 
TaxTMI 
1993 (5) TMI 194
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.... to and governing by the Indian Contract Act, 1872, hereinafter called the Contract Act. 3. Clauses (h) and (g) of Section 2 of the Contract Act declare that all agreement which are enforceable by law are contracts and those which are not enforceable by law are void. 4. Essential components of a valid Contract are provided in Section 10 of the Contact Act. These are as below. (i) Competence of the parties to the agreement; (ii) Free consent of the parties; (iii) Lawfulness of consideration and object of the agreement; and (iv) Absence of express declaration under the Contract Act rendering the agreement to be void. 5. Of the above noted four basic ingredients, lawfulness of the object of the agreement and absence of express declaration under the Contract Act rendering the agreement to be void are pertinent in the context of investigation of the questions under consideration. 6. Section 23 of the Contract Act envisages that object of an agreement will be unlawful, if - (a) it is forbidden by law; or (b) is of such a nature that, if permitted, it would defeat the provisions of any law; or (c) is fraudulent; or....
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....art thereof, no person shall occupy it in any capacity on his behalf, or otherwise than under an order of allotment or release under Section 16, and if a person so purports to occupy it, he shall, without prejudice to the provisions of Section 31, be deemed to be an unauthorised occupant of such building or part. 17. Conditions of making allotment order. - (1) Where the District Magistrate receives an intimation, under sub-section (1) of Section 15, of the vacancy or expected vacancy of building any allotment order in respect of that building shall be made and communicated to the landlord within twenty-one days from the date of receipt of such intimation, and where no such order is so made or communicated within the said period, the landlord may intimate to the District Magistrate the name of a person of his choice, and thereupon the District Magistrate shall allot the building in favour of the person so nominated unless for special and adequate reason to be recorded he allots it to any other person within ten days from the receipt of intimation of such nomination : Provided that where the landlord has made an application under clause (b) of sub-section (....
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....xcept in pursuance of an allotment or release order. The object of letting or occupation of the building without allotment-release order is completely forbidden. 13. Surreptitious letting or occupation of a building without an order of allotment/release will clearly contravene the provisions of Sections 11 and 13 of the new Act. Under Section 31 such contravention is punishable with specified sentence of imprisonment or with fine or with both. By providing penalty for the offender the Legislature will be deemed to have intended to forbid the formation of any agreement of letting or occupation of a building which runs counter to the mandate contained in Sections 11 and 13 of the new Act. Obviously, the prohibition is designed to further and achieve one of the objects of the new Act, namely, regulation of letting of specified classes of buildings situate in urban areas. 14. Any agreement formed with the object to let or occupy the building subject to and governed by the new Act, except in pursuance of an allotment/release order besides being clearly forbidden, if permitted, wilt defeat the provisions of Sections 11, 13 and 17 of the new Act resulting in frustration of one of th....
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....us of an agreement formed in contravention of provision of Section 7(2) of the old Act which reads thus : '7. Control of letting..... (2) The District Magistrate may by general or special order require a landlord to let or not to any person any accommodation which is or has fallen vacant or is about to fall vacant." Hon'ble D. S. Mathur, C. J., with whom Hon'ble Prem Prakash, J. concurred, held that an agreement to let out an accommodation in contravention of the old Act was an agreement forbidden by law or was at least of such a nature that, if permitted, it would defeat the provisions of the law as contemplated by Section 23 of the Contract Act rendering the agreement void. This dictum still holds the field and is fully applicable to an agreement made in contravention of the provisions of Sections 11 and 13 of the new Act. 19. The questions engaging the attention herein have been the subject matter of consideration of a Division Bench of this Court in Geep Industrial Syndicate Ltd., Allahabad v. The Rent Control and Eviction Officer, Allahabad, 1982 All U 857. The Division Court held as below: "Section 11 of the Act imposes a prohibiti....
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....An agreement offending a Statute or public policy or forbidden by law is not merely void but it is invalid from nativity. It cannot become valid even if the parties thereto agree to it. 23. The concept that an agreement may be void in relation to a specified person and may be valid or voidable between the parties thereto is not applicable to an agreement the very formation whereof law interdicts; or which is of such a character that, if permitted, it would frustrate the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the court regards it as immoral or opposed to public policy. Neither party can enforce said agreement. No legal relations come into being from an agreement offending a Stature or public policy. 24. From the provisions contained in Ss. 11, 13, 17 and 31 of the new Act it is as clear as the light of day that an agreement involving transaction of either letting by the landlord or occupation by any person of any buildings except in pursuance of an order of allotment or release being prohibited has to be treated to have been invalidated by the Statute rendering it void and unenforceable in a court of law.....
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....sion in the case of Udhoo Dass v. Prem Prakash, completely nullified. The decision stands overruled by the Legislature. Incidentally, it may be noticed that even before the Legislative overruling, the decision was overruled by a Full Bench of five Hon'ble Judges in the case of Abdul Hamid v. Md. Ishaq. No substantial support can, therefore, be drawn from it. 28. The decision of the Hon'ble Supreme Court in the case of Murlidhar Agarwal v. State of Uttar Pradesh, is founded on the decision in the case of Udhoo Dass v. Prem Prakash. By itself, it does not declare any law except approving the view of the Full Bench expressed in Udhoo Dass v. Prem Prakash. The ratio of Murlidhar Agarwal's case cannot, therefore, be taken to apply to the cases which are covered by the new Act (See Geep Industrial Syndicate Ltd., Allahabad v. The Rent Control and Eviction Officer, Allahabad). 29. The question that engaged the attention of the Hon'ble Supreme Court in Nanakram v. Kundalrai, was whether a lease between a landlord and a tenant for letting and occupation of a house in contravention of clause 22 of the Central Provinces and Berar Letting of Houses and Rent Control Order,....
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....ation of any house by any person (other than landlord) except under an order under sub-clause(l) of clause 23 or clause 24 or on an assurance from the landlord that the house is being permitted to be occupied in accordance with sub-clause (2) the Rent Control Order. Clause 23(1) of the Rent Control Order empowers the Deputy Commissioner to order the landlord within a stipulated period to let out the house to any person falling in any of the specified categories. The power to order the landlord to let out the house can be exercised only if the landlord while intimating vacancy does not state that he needs the house for his own occupation or he fails to satisfy the Deputy Commissioner that the house is so needed. If the landlord states his need for the house and satisfies the authority about the need the Deputy Commissioner has no choice except to permit him to occupy the house. 32. Sub-clause (2)of clause 23 of the Rent Control Order provides that if no order either requiring him to let out the house or permitting him to occupy the same is passed within the period specified in sub-clause (1), the landlord shall be free to let the vacant house to any person. 33. It is to be ....
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....of the provisions of the new Act will not be void, and that it will be binding on parties thereto. 37. It is true that in paragraph 12 of the judgment in Nanakram v. Kundalrai, it has been observed that "there is no reason why the lease between the landlord and the tenant, although inconsistent with clause 22, should not be binding as between the parties thereto, it is not a void transaction." With utmost humility and reverence it is stated that above observations are not compatible with provisions of Ss. 10 and 23 of the Contract Act. Otherwise also, it is most respectfully pointed that the statement of law contained in the said observation is, perhaps, in conflict with the law declared in the decisions of the Hon'ble Supreme Court in Waman Shriniwas Kini v. Rati Lal Bhagwan Das & Co., Shrikrishna Khanna v. Additional District Magistrate, Kanpur and Manna Lal Khetan v. Kedar Nath Khetan. 38. Hon'ble A. N. Ray, the then Chief Justice of India, in his judgment rendered in the case of Manna Lal Khetan v. Kedar Nath Khetan, enunciated the legal position in this regard thus : "Where a contract, express or implied, is expressly or by implication forbidden by st....
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....of a building in contravention of the provisions of the new Act will not be void, and will be valid and binding between the parties thereto, does not lay down law accurately, and shall stand overruled. The law stated in the judgment in Naveen Chandra Sharma v. 6th Additional District and Sessions Judge, Meerut is sound and, therefore, approved. 42. Outcome of the above deliberation unequivocally leads to the following inevitable and inescapable answers to the twin questions referred : 1. An agreement of lease between the landlord and the tenant for letting and occupation of a building in contravention of the provisions of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 is void. 2. The said agreement is unenforceable in law and no decree for ejectment of the tenant can be passed in favour of the landlord on the basis thereof. Sudhir Chandra Verma, J. 43. I am in full agreement with the opinion of Brother D.S. Sinha, J. S.R. Singh, J. 44. Petition on hand came up for hearing before one of us (S. C- Vernia, J.) who, during the course of argument before him, found that there was a conflict of opinion expressed in Navin Chan....
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....it being SCC Suit No. 17 of 1982 in the Court of Civil Judge, Banda who was exercising the powers of Judge, Small Causes Court, for ejectment, recovery of arrears of rent and damages for use and occupation etc. The defendant filed written statement and admitted the plaintiff-petitioners to be the owners of the suit premises as also the creation of contractual tenancy in his favour though he disputed the rate of rent. At the same time, it was also pleaded by the defendant in his written statement that the U. P. Act 13 of 1972 was applicable to the suit premises and therefore, the contract of lease being in contravention of the Act was void and unenforceable by law. The plea as to the suit instituted on the basis of the said contract being not cognizable by Small Causes Court, was also raised. 47. A preliminary issue was struck by the learned trial Court as to whether the court had jurisdiction to try the suit. The said issue was decided in favour of the plaintiffs. Thereafter the suit was taken up for final disposal and as many as six issues were framed including the issue as to whether the contract between the parties being void, was not enforceable by law (Issue No. 5). The lea....
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....f the Indian Contract Act, 1872. He urged that the lease created in contravention of S. 11 of the Act, does not in any manner, operate as an obstacle in the working of the Act inasmuch as the occupation of the lessee being unauthorised in law in view of S. 13 of the Act, the building continues to remain open for release or allotment, as the case may be, under S. 16 of the Act and therefore urged the learned counsel, the provisions of U.P. Act 13 of 1972 would not in any manner be defeated on account of a contractual lease created otherwise than in pursuance of the order of allotment. 49. Sri Wajahat Hussain Khan, learned counsel appearing for respondent No. 3, urged that tenancy created in contravention of express prohibition contained in S. 11 of the U.P. Act 13 of 1972, is illegal and void by virtue of S. 6(h) of the Transfer of Property Act read with S. 23 of the Contract Act and being a void transaction, the lease shall be deemed to be non-existent for ail legal purposes and therefore, unenforceable by law. 50. With a view to appreciating the submissions made at the bar, the concept of tenancy and the element of contract and of transfer of interest in Immovable property i....
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....o or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal and when the person to whom the proposal is made, signifies his assent thereto, the proposal is said to be-accepted. A proposal when accepted becomes a promise. 56. Section 2 further provides that when at the desire of the promissor, the promises or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Every promise and every set of promises, forming consideration for each other, is an agreement. 57. An agreement not enforceable by law is said to be void while an agreement enforceable by law is a contract. According to S. 10 of the Contract Act, all agreements are contracts, if they are made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void by the Act. 58. In other words, contracts may be invalidated either by the illegality of the object or consideration itself or by the incapac....
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.... their Book in 'Indian Contract and Specific Relief Acts', 10th Edition, Page 228, have explained the word 'object' as distinguished from the word 'consideration' to mean 'purpose' or 'design*. In Chandra Sreenivasa Rao v. Rama Mohna Rao AIR 1952 Mad 579, Subharao, J. (as his Lordship then was) while considering the word 'object' in S. 23 of the Contract Act in the context of enforceability of the debt secured to celebrate the marriage of a minor which was prohibited by Child Marriage Restraint Act, 1929, held that the word 'object' in S. 23 means 'purpose' or 'design' of the contract. The same meaning has been given to the word 'object' by Supreme Court in Gurmukh Singh v. Amar Singh [1991] 1 SCR 885. It has been observed at pages 82-83 as under : "Section 23 of the Contract Act adumbrates that the consideration or object of an agreement is lawful unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provision of any law; or is fraudulent, or involved or implied injury to the persons or property of another; or the court regard it as immoral or opposed to pub....
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....not to completely abrogate or take away the right of the owner-landlord of any building to let it out. Accordingly, urged Sri Saxena, a lease created in contravention of S. 11 of the Act, does not come within the 'forbidden by law' clause of S. 23 of the Contract Act. 66. The submission made by Sri Saxena is misconceived and dehors any merits. What is meant by the expression 'forbidden by law' in S. 23 of the Contract Act has very succinctly been stated by Pollack and Mulla in their book on 'Indian Contract and Specific Relief Acts', 10th Edition, P. 231 as thus : "Forbidden by law" -- 'An act or undertaking is equally forbidden by law whether it violates a prohibitory enactment of the legislature or a principle of unwritten law. But in India, where the criminal law is codified, acts forbidden by law seem practically to consist of acts punishable under the Penal Code and of acts prohibited by special legislation or by regulations or orders made under authority derived from the legislature." The above meaning of the term 'forbidden by law' occurring in S. 23 of the Contract Act has been approved of by the Supreme Court in Gheru Lal ....
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....se as the case may be, issued under S. 16 and that being so, not only the promise made by the lessor to let out the building in question and the reciprocal promise made by the lessee to pay rent for its use and occupation without an order of allotment under S. 16 of the Act are hit by S. 23 of the Contract Act but the tenancy arising out of such a contract is also hit by the same very provisions of law and is nothing but a still-born transaction being illegal and void from the very inception. It is true that what is void cannot be equated with what is forbidden by law as held by the Supreme Court in Cheru Lal Parekh's case AIR 1959 SC 781. But the converse is not, in view of S. 23 of the Contract Act. The tenancy is illegal because it was created against express and explicit statutory prohibition contained in S. 11 of the Act and void because it is based on 'consideration' and 'object' which are 'forbidden by law' within the meaning of S. 23 of the Contract Act. I am, therefore, of the opinion that agreement to let out a premises governed by U.P. Act 13 of 1972 otherwise than in pursuance of an order of allotment is illegal and void and the lease created....
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....ue of sections 23 to 30 etc. of the Contract Act or by a provision of any other enactment. 75. Coming now to the argument of Sri P. N. Saxena on the question as to whether the consideration or object of the agreement of lease and of the lease itself is of such a nature that 'if permitted' it would defeat the provisions of U. P. Act 13 of 1972, it may be observed that the words "if permitted" occurring in the expression "consideration or object of an agreement is lawful, unless it is of such nature that, if permitted, it would defeat the provisions of any law" used in Section 23 of the Contract Act, in the context of the section, mean 'if accepted', 'if allowed'. As explained earlier in this judgment, the landlord's promise to let out his building to the tenant in consideration of the latter's promise to pay money called rent for use and occupation of the building without an order of allotment is of such a nature that 'if permitted' it would defeat the provisions of Sections 11 and 13 of U. P. Act 13 of 1972. The purpose and design of an agreement of lease without an order of allotment run counter to the scheme of the Act and object sought ....
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....ying the building without an order of allotment being that of an 'unauthorised occupant' the building continues to remain open for allotment notwithstanding the contract of tenancy and therefore, urged the learned counsel, the question of frustration of the object of the Act does not arise.' The submission, in my opinion, is misconceived inasmuch as having regard to the uncertainty of litigation and the delay that takes place at every stage of the litigation, it cannot be gain said that letting out the building otherwise than in pursuance of an order of allotment would certainly come in the way of an effective implementation of the purpose of the Act and is bound jo frustrate its object inasmuch as the immediate availability of the building for being allotted to a needy person is frustrated/thwarted. 78. Therefore, in my opinion, the contract of letting and occupation of a building otherwise than in pursuance of an order of allotment is of such a nature that 'if permitted' it would defeat the provisions of law. Any other view of the question would be non-sequitur and destructive of the objectives of the Act. 79. It is true that mere agreement of lease in i....
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....ld defeat the rights of the prospective allottees. 82. in support of his argument as to validity of the lease, the learned Counsel appearing for the petitioner placed reliance upon the Full Bench decision of this Court in Udho Das v. Prem Prakash AIR 1964 All 1 Shop in question in that case was governed by the U. P, (Tenancy) Control of Rent and Eviction Act, 1947 (UP) Act No. 3 of 1947. One 'R' was admitted by the landlady as a tenant of the shop on 1-2-1952. An allotment order was passed under Section 7(2) of the U. P. Act No. 3 of 1947 in favour of 'N' on 20-2-1952 calling upon the landlady to let the shop to 'A'. The question arose as to whether the tenancy created in favour of 'R' without an order of allotment was valid. M. C. Desai, C. J. held as under :-- "Allowing an accommodation to be used is not forbidden by any law; it is entering into a contract of tenancy in contravention of an order made under Section 7(2) by a District Magistrate -- that may be said to be a forbidden act. But it is an act forbidden by a District Magistrate and not by law within the meaning of Section 23. An order made under Section 7(2) by a District Magis....
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....atute are covered by the term 'law' used in Cls. (i) and (ii) of Section 23, Contract Act. I have already shown that the agreement of tenancy under consideration does not infringe any specific provision of the Rent Control Act." The U. P. Act 13 of 1972 is materially different from U. P: Act No. 3 of 1947 in that letting except under an order of allotment is now expressly prohibited by Section 11. The occupation of any vacant building governed by the Act without an order of allotment or release, as the case may be, is also now expressly forbidden by Section 13. That being so, Udho Das (supra) is no longer relevant to the question of the validity of an agreement of lease in the context of U. P. Act No. 13 of 1972. Further the term 'law' in Section 23 of the Contract Act has, in my opinion, been used in a wider sense and must be understood in the sense of the term explained in Art. 13(3) of the Constitution. 84. It may also be noted that 'Udho Das' was specifically overruled by a larger Bench of five Judges in Abdul Hamid v. Mohd. Ishaq AIR 1975 All 166 . It was, of course, referred to and approved by the Supreme Court in Murlidhar v. State of U. P [1975....
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.... held as under : "Section 11 of the Act imposes a prohibition or restriction against letting without an allotment order. Section 12 contemplates of certain contingencies in which a landlord or tenant of a building would be deemed to have ceased to occupy it. Section 13 provides for restriction on occupation of building without allotment order. A conjoined reading of Section 11 imposes a prohibition on letting without allotment order, Section 13 places restriction on occupation without allotment or release. These two sections are required to be read together, Reading these two sections, it would appear that neither can a landlord let out a premises without an allotment order nor can any one occupy it. These two provisions were enacted with a view to undo the effect of a Full Bench decision of this Court reported in Udho Das v. Prem Prakash....." After referring to Murlidhar's case (supra), the learned Judge observed as below. "From the above, it would appear that in case of an illegal letting or subletting, the view taken was that the contract may be binding on the parties to it, but not on the authorities which would mean that the possession of a person who....
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....ub-clause (2) of Section 23, the landlord has been given liberty to let the house to any person of his choice if no order is passed and served upon the landlord as aforesaid. It is thus evident that the Rent Control Order contains provisions prohibiting letting and occupation to a great extent similar to the ones contained in Sections 11 and 13 of the U. P. Act No. 13 of 1972. The Supreme Court after noticing with approval the law laid down in the two cases of Udho Das and Murlidhar (supra) held as under : 'Nowhere does the Rent Control Order mandate that the Deputy Commissioner must eject a person who had entered into possession of a house in violation of clause 22. If upon consideration of the situation prevailing then the Deputy Commissioner takes no action in the matter; there is no reason why the lease between the landlord and the tenant, although inconsistent With clause 22 should not be binding as between the parties thereto. It is not avoid transaction. There is nothing in the Rent Control Order declaring it to be so. Now if the lease is not void then it is not open to either party to avoid the lease on the ground that is inconsistent with clause 22. The partie....
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....p;x x "A decision based on sub-silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the Court or is present to its mind." x x x x x "..... A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Art. 141." 93. As seen hereinbefore, the decision in Nanak Ram's case (supra) proceeds on assumption -- possibly because of Udho Das and Murlidhar -- that the lease transaction was not void and that there was nothing in the Rent Control Order declaring it to be so. Obviously, as observed earlier the effect of letting in....
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....sion made thus far inevitably yields and begets an affirmative answer to the first question and the same stands answered accordingly. 97. Now coming to the second question as to whether such a lease as aforesaid is enforceable and a suit of ejectment and recovery of arrears of rent and damages etc. based on such lease can be maintained by the lessor against the lessee, the following propositions of law enunciated by Sir William Anson in his book 'Law of Contract' (26th Edn. Edited by A. G. Guest), may usefully be quoted below as guiding principles on the question : "It is scarcely surprising that the Courts will refuse to enforce an illegal agreement at the suit of a person who is himself implicated in the illegality. But it is also a rule of English law that money or property transferred by such a person cannot be recovered. In the colourful words of Wilmot C.J. : 'All writers upon our law agree in this, no polluted hand shall touch the pure fountains of justice. Whoever is a party to an unlawful contract, if he hath once paid the money stipulated to be paid in pursuance thereof, he shall not have the help of a court to fetch it back again. 'This princi....
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....legal it can be performed by illegality or is intended to be performed illegally the law will not help the plaintiffs in any way i.e. by direct or indirect enforcement of rights under the contract. And for this purpose both the parties are presumed to know the law. If expressly prohibited by law, the contract is void ab initio. If both parties have knowledge that a contract could not be carried out without a violation of the law, the contract would be un-enforceable. But if only one party has such knowledge the innocent party is not precluded because otherwise it would injure the innocent, benefit the guilty and put a premium on deceit. If a contract can be performed in one of two ways, i.e. legally or illegally it is not an illegal contract though it is un-enforceable at the suit of a party who chooses it to perform illegally." 101. In Anson's Law of Contract (supra), it has also been propounded that where the plaintiff is not relying upon the illegal contract, he may sue the defendant for possession delivered to the latter under the illegal contract. To quote the learned Author - "It is settled law that the ownership of property can pass under an illegal contract ....
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....was not permissible to any person to rely upon the contract. 104. While commenting on the maxim --'in pan delicto potior est conditio possidentis' -- the Supreme Court in the above noted case observed as under : "The maxim must not be understood as meaning that where a transaction is vitiated by illegality the person left in possession of goods after its completion is always and of necessity entitled to keep them. Its true meaning is that where the circumstances are such that the court will refuse to assist either party, the consequence must, in fact, follow that the party in possession will not be disturbed."--(Per Du Paroq L. J. In Dow Makess Ltd. v. Barnet Instruments Ltd. 1945-1 K. B. 65, 72). 105. The Supreme Court further held :-- The first respondent in the present case did not call upon the court to enforce any agreement at all. When the instrument of lease was executed and possession given and sub-letting done it received its full effect; no aid of the court was required to enforce it. The respondent's suit for ejectment was not brought for enforcement of the agreement which recognised sub-letting but he asked the court to enforce the ri....
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....y executing a registered 'kabuliat' and paid rent for sometime but in a suit for rent pleaded that in the absence of a lease there was no contract of tenancy and rent could not be recovered by suit. The Full Bench held that the suit might be "treated as one for compensation for the use and occupation of the land and in view of the fact that the defendants entered into and have continued in occupation of the land, with the plaintiff's consent, they undertaking to pay rent to the former, cannot be heard now to say that they are not liable for rent for use and occupation. They certainly cannot be treated as trespassers and it is admitted that they here to before have paid rent to the plaintiff in respect of their occupation of the land in question. It is not their case that they are trespassers. Under the circumstances we failed to discover on what ground they can resist the plaintiff's claim to recover compensation for the use and occupation of his land." The rent agreed was taken by the Full Bench to be the measure of compensation. 109. In Ajodhya Singh v. Khusro Begum AIR 1924 Oudh 98, the plaintiff who failed to prove a lease was allowed a decree on the basis of....