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After this finding was received the second appeal was again placed for bearing by Mr. Justice Ragghava Rao. FAC |
At the second hearing the appellants raised the point the amending Act by which section 28A was inserted in the Provincial Insolvency Act was ultra vires. FAC |
The learned judge overruled the objections made by the appellants against the finding submitted by the trail court on the issue remanded to it and accepted that finding; but in view of the fact that the vires of the amending Act was challenged he thought it exp edient that the second appeal should be heared by a Bench ... |
That is how the second appeal came before a division Bench of the Madras High Court for final disposal. FAC |
In its final judgment the High Court has observed that the argument that Act 25 of 1948 was ultra vires was not pressed before the High Court, that certain other grounds were sought to be raised by the appellants but they were not allowed to be raised; so that in the result the main argument urged before the High Court... |
The High Court considered the conflicting decisions on this point and adhered to the view which has prevailed in the said High Court 747 since the decision in Vodiana Kamayya vs Gudisa. Mamayya (1) and held that the appellants and respondent 2 were estopped from setting up the fraud against respondent 1 in his present ... |
In the result respondent 1 's claim in respect of the whole of the properties conveyed to him by the Official Receiver has been decreed. FAC |
It is against this decree that the appellants have come to this Court with a certificate granted by the High Court and the principal point which has been argued before us on their behalf by Mr. Tatachari is that the High Court was in error in coming to the conclusion that in a case where both the transferor and the tra... |
The point thus raised lies within a narrow compass and the material facts which give rise to it are no longer in dispute. Ratio |
The transaction in favour of respondent 1 is the result of a fraudulent plan to which both he and respondent 2 agreed. Ratio |
In was effected with the mutual consent of the vendore and the vendee to defraud the creditors of the vendor. Ratio |
That being so the transfer is not supported by any consideration and the transferee agreed to act as the benamindar until the transferor required him to reconvey the properties to his sons. Ratio |
The object intended to be achieved and the fraud initially contemplated by both the parties have been achieved and the creditors of respondent 2 have been defrauded. Ratio |
Possession of the properties, however, remained with respondent 2 and his sons the appellants; and in the present 748 section respondent 1 seeks to obtain possession of the properties on the ground that a deed of conveyance has been passed in his favour by the Official Receiver. Ratio |
Thus both the parties are confederates in the fraud and are equally guilty. Ratio |
Respondent 2 and the appellants seek to resist respondent 1 's claim to recover possession of the properties conveyed to claim on the ground that the conveyance is void having been effected for a fraudulent purpose which has been carried out. Ratio |
They urge that it has not been supported by any consideration and no title has passed in favour of the transferee. ARG |
Respondent 1 sheets this challenge to his title by pleading that respondent 2 who participated in the fraud cannot be allowed to plead his own fraud in support of his refusal to part with the possession of the properties, and he urges that there is a conveyance duly executed in his favour on which the Court must act wi... |
The High Court his upheld the plea of respondent 1 and has not allowed either respondent for the appellants to plead the fraud in support of their defence. Ratio |
Is this decision right? That is the question which falls to be decided in the present appeal. Ratio |
Reported decisions bearing on this question show that consideration of this problem often gives rise to what may be described as a battle of legal maxims. Ratio |
The appellants emphasised that the doctrine which is preeminently applicable to the present case is ex dolo malo non oritur action or ex turpi causa non oritur actio. ARG |
In other words, they contended that the right of action cannot arise out of fraud or out of transgression of law; and according to them it is necessary in such a case that possession should rest where it lies in pari delicto potior est conditio possidenties; where each party is equally in fraud the law favors him who i... |
On the other hand, respondent 1 argues that the proper maxim to apply is nemo allegans suam turpitudinum audiendumest, 749 whoever has first to plead turpitudinum should fail; that party fails who first has to allege fraud in which he participated. ARG |
In other words, the principle invoked by respondent 1 is that a man cannot plead his own fraud. Ratio |
In deciding the question as to which maxim should govern the present case it is necessary to recall what Lord Wright, M. ' R. observed about these maxims in Berg vs Sadler and Moore (1). PRE |
Referring to the maxim ex turpi causa non oritur actio Lord Wright observed that "this maxim, though veiled in the dignity of learned language, is a statement of a principle of great importance; but like most maxims it is much too vague and much too general to admit of application without a careful consideration of the... |
Therefore, in deciding the question raised in the present appeal it would be necessary for us to consider carefully the true scope and effect of the maxims pressed into service by the rival parties and to enquire which of the maxims would be relevant and applicable in the circumstances of the case. Ratio |
It is common ground that the approach of the Court in determining the present dispute must be conditioned solely by considerations of public policy. Ratio |
Which principle would be more conducive to, and more consistent with, public interest, that is the crux of the matter. Ratio |
To put it differently having regard to the fact that both the parties before the Court are confederates in the fraud, which approach would be less injurious to public interest. Ratio |
Whichever approach is adopted one party would succeed and the other would fail, and so it is necessary to enquire as to which party 's success would be less injurious to public interest. Ratio |
Out of the two confederates in fraud respondent 1 wants a decree to be passed in his favour and that means he wants the active assistance of the Court in reaching the properties possession of (1) , 162. 750 which has been withheld from him by respondent 2 and ' the appellants. Ratio |
if the defense raised by the appellants is shut out respondent 1 would be entitled to a decree because there is an ostensible deed of conveyance which purports to convey title to him in respect of the properties in question; but, in the circumstances ', passing a decree in favour of respondent 1 would be actively assis... |
On the other hand, if the Court decides to allow the plea of ' fraud to be raised the Court would be in a position to hold an enquiry on the point and determine whether it is a case of mutual fraud and whether the fraud intended by both the parties has been effectively carried out. Ratio |
If it is found that both the parties are equally guilty and that the fraud intended by them has been carried out 'the position would be that the party raising the defence is not asking the Court 's assistance in any active manner; all that the defence suggests is that a confederate in fraud should not be permitted to o... |
It appears to us that this latter course is less injurious to public interest than the former. Ratio |
There can be no question of estoppel in such a case for the obvious reason that the fraud in question was agreed by both the parties and both parties have assisted 'each other ' in carrying out the fraud. Ratio |
When it is said that a person cannot 751 plead his own fraud it really means that a person cannot be permitted to go to a Court of Law to seek for its assistance and yet base his claim for the Court 's assistanceon the ground of his fraud. Ratio |
In this connection it would be relevant to remember that respondent 1 can be said to be guilty of a double fraud; first he joined respondent 2 in his fraudulent scheme and participated in the commission of fraud the object of which was to defeat the creditors of respondent 2, and then he committed another fraud in supp... |
The conveyance in his favour is not supported by any consideration and is the result of fraud; as such it conveys no titile to him. Ratio |
Yet, if the plea of fraud is not allowed to be raised in defence the Court would in substance be giving effect to a document which is void ab initio. Ratio |
Therefore, we are inclined to hold that the paramount consideration of public interest requires that the plea of fraud should be allowed to be raised ' and tried, and if it is upheld the estate should be allowed to remain where it rests. Ratio |
The adoption of this course, we think, is less injurious to public interest than the alternative course of giving effect to a fraudulent transfer. Ratio |
This question has been the subject matter of judicial decisions in most of our High Courts; and it appears that the consensus of judicial opinion with the exception of the Madras High Court is in favour of the view which we have taken. Ratio |
In Bombay the principle that in dealing with a contest between two participants in fraud possession should be allowed to remain where it rests appears to have been consistently accepted until Chief Justice Sir Lawrence Jenkins struck a note of dissent in Sidlingappa Bin Ganeshappa vs Hirwa Bin Tukasa (1). Ratio |
Thereafter the correctness of (1) (1907) 1.L. R. 752 this judgment was sometimes doubted in the subsequent decisions of the said High Court [Vide : Lakshman Balvant Khisti V. Vasudev Mohoniraj Pande(1)] and finally the Full Bench of the said High Court reversed the said decision of Sir Lawrence Jenkins in Guddappa Chik... |
Since then the decision of the Full Bench has been consistently followed in the Bombay High Court. Ratio |
The same view has been accepted by the Calcutta, Allahabad, Nagpur and Patna High Courts [Vida : Preomath Koer vs Kazi Mahomed Shazid(3).Emperor vs Abdul Sheikh(4), Vilayat Husain vs Misran (5), Nawab Singh vs Daljit Singh (6), Qader Baksh vs Hakim (7), Bishwanath g/o Karunashanker Shukla vs Surat Singh alias Chhuttu S... |
In Madras the earlier decisions of the High Court appear to have, taken the same view [Vide: Venkataramana vs Viramma (10), Yaramati Krishnayya vs Chundru Papayya (11) and Raghavalu Chetty vs Adinarayana Chetty (12)]. Ratio |
In the case of Vodiana Kamayya vs Gudisa Mamayya (13), however, a Division Bench of the Madras High Court upheld the view that a person who has conveyed property benami to another for the purpose of effecting a fraud on his creditors cannot, where the fraud has been effected, set up the benami character of the transact... |
Since then this view has prevailed in the Madras High Court [vide : Keppula Kotayyar Naidu vs Chitrapu Mahalak8hmamma (14) and Muthu K. R. A. R. P. L. Arunarhalam Chettiar vs Bangaswamy Chettiar (1.5)]. PRE |
In our opinion (1) (2) I. L. R (3) (1903 4) 8 C. W. M. 620.(4) A. I. R. (5) All. 396.(6) (1936) 1.L. R. 58 All. 842.(7) (1932) 1.L. R. 13 Lab.(8) A.I. R. 3.(9)(1951) 1.R. 30 Pat.(10) (1887) 1.L. R.10 Mad.(11) (1 897) 1.L. R. (12) (1 909) 1.L. R. (13) (14) Mad.(15) Mad.753 the view taken by these subsequent decisions of... |
In this connection we may incidentally refer to the observations made by the Privy Council in T. P. Petherpermal Chetty vs R. Muntandi Servai. PRE |
In that case the Privy Council has no doubt dealing with the question on the basis that the purpose of the fraudulent conveyance had been defeated and so different principles naturally came into play. PRE |
While discussing the problem in its broad aspect, however, Lord Atkinson, who delivered the judgment of the Board, cited with approval the observations made in Mayne 's Hindu Law which clearly support the view that we have taken. PRE |
Says Mayne: 1 'The, fact that A has assumed the name of B in order to cheat X can be no reason whatever why a Court should assist or permit B to cheat A. PRE |
But if A requires the help of the Court to get the estate back into his own possession, or to get the title into his own name, it may be very material to consider whether A has actually cheated X or not. PRE |
If he has done so by means of his alias, then it has ceased to be a mere mask and has become a, reality. PRE |
It may be very proper for a Court to say that it will not allow him to resume the individuality which he has once cast off in order to defraud others. PRE |
If, however, he has not defrauded any one there can be no reason why the Court should punish his intention by giving his estate away to B, whose roguery is. PRE |
even more complicated than his own This appears to be the principle of the English decisions. PRE |
But where the fraudulent or illegal purpose has actually been effected by means of the colorable grant then the maxim applies In pari delicto potior est conditio possidentis. PRE |
The Court will help neither party and let the estate lie where it falls (2)". PRE |
Lord Atkinson has observed that this statement of the law is correct and in that sense (1) (1908) L. R. 35 1.A. 98.(2)Mayne 's Hindu Law, 7th Ed,p.595 para 446(35 I.A.p 102) 751 the view that we have taken may be said to be consistent with the opinion expressed by the Privy Council by approving the statement of the law... |
In support of the contrary view reliance is usually placed on an early English decision in Doe, Dem.Roberts against Roberts, Widow (1). PRE |
In that case it was held that "ro man can be allowed to allege his own fraud to avoid his own deed; and, therefore, where a deed of conveyance of an estate from one brother to another was executed, to give the latter a colorable qualification to kill game. PRE |
The document was as against the parties to it valid and so sufficient to support an ejectment for the premises". PRE |
In dealing with the question raised Bayley, J. observed "by the production of the deed, the plaintiff established a prima facie title; and we cannot allow the defendent to be heard in a Court of Justice to say that his own deed is to be avoided by his own fraud;" and Holroyd, J., added that " 'a deed may be avoided on ... |
This decision has, however, been commented on by Taylor in his "Law of Evidence". PRE |
According to Taylor "it seems now clearly settled that a party is not estopped by his deed from avoiding it by proving that it was executed for a fraudulent, illegal or immoral purpose (2)". Ratio |
The learned Author then refers to the case of Roberts (1) and adds "in the subsequent case of Prole vs Wiggins (3) Sir Nicholas Tindal observed that this decision rested on the fact that the defence set up was inconsistent 'with the deed". Ratio |
Taylor then adds that ",the case, however, can scarcely be supported by this circumstance, for in an action of ejectment by the grantee of an annuity to recover premises. Ratio |
(1) (2) Taylor 's "Law of Evidence", Vol.I, 11th Ed.p. 97, paragraph 93.(3) 35; ; 43 R. R. 621.755 on which it was secured, the grantor was allowed to show that the premises were of less value than the annuity, and consequently, that the deed required enrollment, although he had expressly covenanted in the deed that th... |
According to the learned author "the better opinion seems to be that where both parties to an indenture either know, or have the means of knowing, that it was executed for an immoral purpose, or in contravention of a statute, or of public policy, neither of them will be estopped from proving those facts which render th... |
Indeed, according to Taylor, although illegality is not pleaded by the defendant nor sought to be relied upon by him by way of defence, yet the Court itself, upon the illegality appearing upon the evidence, will take notice of it, and will dismiss the action Ex turpi causa non oritur actio. Ratio |
No polluted hand shall touch the pure fountain of Justice" (P. 93). Ratio |
To the same effect is the opinion of Story:(1) "In general, where parties are concerned in illegal agreements or other transactions, whether they are mala prohibita or mala in se, Courts of Equity following the rule of law as to participators hi a common crime will not interpose to grant any relief, acting upon the kno... |
But the modern doctrine has adopted a more severely just and probably politic and moral rule, which is to leave the parties where it finds them giving no relief and no countenance to claims of this sort" '. Ratio |
(1) Story ' s Equity Jurisprudence, Vol.I. section 421; English edition by Randell, 1920, section 298.756 Ratio |
In judicial decisions where this question has been considered a passage from the judgment of Lord Mansfield, C. J., in Holman vs Johnson (1) is often quoted. PRE |
If we may say so with respect the said passage very succinctly and eloquently brings out the true principles which should govern the decision of such cases. Ratio |
Said Lord Mansfield, C. J., "the objection that a contract is immoral or illegal as between plaintiff and defendant sounds at all times very ill in the mouth of the defendant. PRE |
It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. PRE |
The principle of public policy is this ex dolo malo non oritur actio. PRE |
No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. PRE |
If, from the plaintiff 's own stating or otherwise the cause of action appears to arise ex turpi causa or the transgression of a positive law of this country, there the court says he has no right to be assisted. PRE |
It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff". PRE |
On behalf of the respondents it was urged that the principles on which the appellants rely are applicable to contracts and not to conveyances. Ratio |
A conveyance, it is argued, rests on a different basis from a contract, and so the English decisions cannot be pressed into service by the appellants. Ratio |
We are not impressed by this argument. Ratio |
Even if respondent 1 has based his case on a conveyance the position still remains that as a result of the facts proved by respondent 2 and the appellants the conveyance is void ab initio. Ratio |
It is a document fraudulently executed and as such it conveys no title to the transferee at all. Ratio |
That being so we do not think that in giving effect to the considerations of (1) (1775) 1 Cowrer 341.757 public interest or policy it makes any difference that the deed on which the present suit is brought is one of conveyance. Ratio |
It is then contended that in deciding the point raised by the appellants we must look to the provisions of section 84 of the and nothing else. Ratio |
The is a comprehensive code and it is only in cases failing under section 84 that it would be permissible to the Court to apply the equitable principles or to invoke considerations of public policy as the appellants purport to do. Ratio |
Section 84 provides that where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the tr... |
We do not see how this section is material or can give any assistance in the decision of the point before us. Ratio |
In the present case the transferee is not in possession of the properties and the present case is not one of the three categories of cases contemplated by the section. Ratio |
If the argument assumes that the only cases where equitable principles can be invoked are cases falling under section 84 and section 84 is exhaustive in that sense, we have no difficulty in rejecting the said argument. Ratio |
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