# Prasad Gupta & Ors v. Sri Mur/i Prasad & Ors. C.A. Nos. 1710 of 1967 & 1986 of

- **Citation:** [1975] 1 S.C.R. 703
- **Court:** Supreme Court of India
- **Decided:** 1974-08-12
- **Bench:** P. Jaganmohan Reddy, M. H. Beg, A. Algiriswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/prasad-gupta-ors-v-sri-mur-i-prasad-ors-c-a-nos-1710-of-1967-1986-of-6229
- **Pages:** 7

## Headnote

Contract Act. s. 65-Scope of-Payment not made under coercion or ignorance
of fair-Whether recoverable.
The appellant paid to the first respondent a large sum of money in respect of'
mining lease granted to it.
the appellant (plaintiff) instituted a suit for recovery·
of possession of the leased property or in the alternative for refund of the sum
paid to the first respondent. After institution of the suit the Bihar Land Reforms
Act came into force as a result of which the appellant's claim in respect of posses~
sion of the mines became unenforceable. The appe1Iant, therefore, confined its
claim for the recovery of the sum paid.
Dismissing the appeal, the trial court held that the appellant was not entitle dj
to claim any relief under s. 65 of the Contract Act because there was no occasion for
it to have been under any kind of ignorance of law and as the Mineral Concession Ru!eS·
of 1949 rendered any stipulation for payment of salami illegal, the lease on that basis
\\'as also illegal. The High Court unheld the view of the trial Court.
Dismissing the appeal,
HELD : This is not a case to which sections 65, 70 and 72 of the Contract Act
apply. The payment of the money was not made lawfully nor \Vas it done under
mistake or coercion.
[709A]
(l)·\Vhere an agreement is void ab initio or a contract becomes void due to subsequent happenings any person receiving an advantage under such agreement or contract is bound to restore such advantage or to make compensation for it to the per-·
son fron1 whom he received it. But where even at the time when the agreement
\vas entered into both the parties knew that it was not lawful and, therefore, void,
there was no contract but only an agreement. [705F[
Harnarh Kaur v. lnder Bahadur Singh, 1923, 50 LA. 69, 75-76 and Shri Ramagya·
Prasad Gupta & Ors. v. Sri Mur/i Prasad & Ors. C.A. Nos. 1710 of 1967 & 1986 of
1966 decided on 11-4-1974, referred to.
Budhu/a/ v. Deccan Banking Company A.LR. 1955 Hyd. 69 and Sil'aran1akrish11aiah v. ]1/arahari Rao, A.LR. 1960 A.P. 186, approved.
(2) Section 4 of the Mines and Mineral (Regulation and Developn1erit) Act,
1948 provides that no mining lease shall be granted otherwise than in accordance·
with the Rules made under the Act. Rule 45 of the Mineral Concession Rules,.
1949 provides that a mining lease shall be granted only to a person holding a certi~
'ficate of approval· from the State Government. Rule 49 provides that no granter
of mining lease shall charge any pren1ium in addition to or in lieu of the rent speci-·
fied in such a lease. Jn the present case the appellant had no certificate as required
under r. 45 and contrary tor. 49 there was a stipulation for pay1nent of a pre1niu1n.
under the lease deed. The lease in favour of the appellant was, therefore, contrary
to the provisions of the Act and the rules and as such void. [708F]
(3) There was no occasion for the plaintiff to have been under any kind of ignorance of law under the Contract Act and the Mineral Concession Rules, 1949.
The appellant was in the business of mining and had the advantage of consulting·.
its lawyers and solicitors. [708H]
CmL APPELLATE JurusmcTION : Civil Appeal No. 1865 of 1967.
Appeal by Special Leave frcm the Judgment & Deciee dat(d the
19th October, 1965 of the Patna High Court in Original Decree No ..
311 of 1960.
704
SUPREME COURT REPORTS
[1975] I S.C.R.
0. P. Malhotra and D. N· Mishra, for the appellant.
D. N. Mukherjee and N. R. Chaudhury, for respondent Ncs. I, 3,
& 5.
S. N. Prasad, for respondent Nos. 3 & 4.
D. P. Singh, S. C. Aggarwala, V. J. Francis and S. S. Bha/llagar,
A
for the intervener.
B

## Text

A
B
c
D
E
F
G
H
703:
KUJU COLLIERIES LTD .
. v.
JHARKHAND MINES LTD. & ORS.
August 12, 1974
[P. JAGANMOHAN REDDY, M. H. BEG, AND A. ALGIRISWAMI, JJ.]
Contract Act. s. 65-Scope of-Payment not made under coercion or ignorance
of fair-Whether recoverable.
The appellant paid to the first respondent a large sum of money in respect of'
mining lease granted to it.
the appellant (plaintiff) instituted a suit for recovery·
of possession of the leased property or in the alternative for refund of the sum
paid to the first respondent. After institution of the suit the Bihar Land Reforms
Act came into force as a result of which the appellant's claim in respect of posses~
sion of the mines became unenforceable. The appe1Iant, therefore, confined its
claim for the recovery of the sum paid.
Dismissing the appeal, the trial court held that the appellant was not entitle dj
to claim any relief under s. 65 of the Contract Act because there was no occasion for
it to have been under any kind of ignorance of law and as the Mineral Concession Ru!eS·
of 1949 rendered any stipulation for payment of salami illegal, the lease on that basis
\\'as also illegal. The High Court unheld the view of the trial Court.
Dismissing the appeal,
HELD : This is not a case to which sections 65, 70 and 72 of the Contract Act
apply. The payment of the money was not made lawfully nor \Vas it done under
mistake or coercion.
[709A]
(l)·\Vhere an agreement is void ab initio or a contract becomes void due to subsequent happenings any person receiving an advantage under such agreement or contract is bound to restore such advantage or to make compensation for it to the per-·
son fron1 whom he received it. But where even at the time when the agreement
\vas entered into both the parties knew that it was not lawful and, therefore, void,
there was no contract but only an agreement. [705F[
Harnarh Kaur v. lnder Bahadur Singh, 1923, 50 LA. 69, 75-76 and Shri Ramagya·
Prasad Gupta & Ors. v. Sri Mur/i Prasad & Ors. C.A. Nos. 1710 of 1967 & 1986 of
1966 decided on 11-4-1974, referred to.
Budhu/a/ v. Deccan Banking Company A.LR. 1955 Hyd. 69 and Sil'aran1akrish11aiah v. ]1/arahari Rao, A.LR. 1960 A.P. 186, approved.
(2) Section 4 of the Mines and Mineral (Regulation and Developn1erit) Act,
1948 provides that no mining lease shall be granted otherwise than in accordance·
with the Rules made under the Act. Rule 45 of the Mineral Concession Rules,.
1949 provides that a mining lease shall be granted only to a person holding a certi~
'ficate of approval· from the State Government. Rule 49 provides that no granter
of mining lease shall charge any pren1ium in addition to or in lieu of the rent speci-·
fied in such a lease. Jn the present case the appellant had no certificate as required
under r. 45 and contrary tor. 49 there was a stipulation for pay1nent of a pre1niu1n.
under the lease deed. The lease in favour of the appellant was, therefore, contrary
to the provisions of the Act and the rules and as such void. [708F]
(3) There was no occasion for the plaintiff to have been under any kind of ignorance of law under the Contract Act and the Mineral Concession Rules, 1949.
The appellant was in the business of mining and had the advantage of consulting·.
its lawyers and solicitors. [708H]
CmL APPELLATE JurusmcTION : Civil Appeal No. 1865 of 1967.
Appeal by Special Leave frcm the Judgment & Deciee dat(d the
19th October, 1965 of the Patna High Court in Original Decree No ..
311 of 1960.
704
SUPREME COURT REPORTS
[1975] I S.C.R.
0. P. Malhotra and D. N· Mishra, for the appellant.
D. N. Mukherjee and N. R. Chaudhury, for respondent Ncs. I, 3,
& 5.
S. N. Prasad, for respondent Nos. 3 & 4.
D. P. Singh, S. C. Aggarwala, V. J. Francis and S. S. Bha/llagar,
A
for the intervener.
B
The Judgment of the Court was delivered by
ALAGIRISWAMI, J.-This appeal is against the judgment of the Patna
High Court by Special Leave granted by this Court. It arises out of a
mining lease granted by the !st respondent but alleged to have been
<lone so in the name of the !st respondent by the 2nd respondent in
favour of Haricharan Singh J.b. & Co. on 7-9-1950. In pursuance
of the lease a sum of Rs. 80,000/- was paid to the !st respondent. The
plaint allegation was that the Isl respondent was a Limited Company
<:reated by the 2nd respondent. There was an earlier learn in respect
of the same property in favour of rnspondents 3 and 4 which expired
on 4-4-1950. Haricharan Singh J.b. & Co. later changed its name
to Kuju Collieries Ltd. who are the appellants. As the plaintiff did
not get the possession of the leased property it instituted a suit for
recovery of possession of the leased property along with mesne profits
:and in the alternative for refund of the sum of Rs. 80,000/- and certain
other sums.
The present appeal is, however, concerned only with
' that amount.
c
D
In the suit tjie !st respondent and the 2nd respondent tcok the
stand that the !st respondent was not created by the 2nd respondent,
E
that the lease was by the !st respondent and the amount was paid
to the !st respondent alone and not to the 2nd respondent. The !st
respondent also contended that the leased properties were handed
over to the plaintiff, that they were not aware that respondents 3 and
4 were resisting the plaintiff's claim and that the !st respondent was
not in any case responsible therefor and that therefore the plaintiff
was not entitled to any relief.
During the pendency of this appeal
F
respondents 2 and 3 died and their legal representatives have not
been brought on record. The appellant is not claiming any relief
against any of the other respondents except respondent No. I and it
is, therefore, unnecessary to refer to the attitude taken by them in the
suit.
It is necessary at this stage to inention that after the institut:cn cf
the suit the Bihar Land Reforms Act came into force as a result of which
.any lessee working a mine became direct lessee under the State, and
as the plaintiff was not working the mines any claim in respect of the
possession of the mines became unenforceable. The appellant has,
therefore, confined his claim to the sum of Rs. 80,000/- as payable
to it by the !st respondent.
The Trial Court held that as the pailntiff was already in the business of mining and had the advantage of consulting its lawyers and
·solicitors and their lease deed was drawn up and prepared by soli-
.::itors, there was no occasion for the plaintiff to have been under
G
H-
..
KUJU COLLIERIES v. JHARKHAND MINES (Alagiriswami, J.) 7Q5.
A
any kind of ignorance of law and as the Mineral Concessicn Rules
of 1949 rendered any stipulation for payment cf salami illegal and the
lease on that basis was also illegal, the plaintiff was not entitkd to claim
relief under s. 65 of the Indian Contract Act. It, therefcre, dismisced
the suit.
On appeal the High Court also held that neither s. 65 nc r s. 72·
'B
of the Contract Act applied to the facts of the case.
c
D
E
F
G
H
We are of the view that s. 65 of the Contract Act cannot help the
plaintiff on the facts and circumstanccs cf this case. Secticn 65.
reads as follows :
"When an agreement is discovered to le void, er when
a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person frcm whom
he received it".
The section makes a distinction between an agreemrnt and a contract. According to s. 2 of the Contract Act an agreement which
is enforceable by law is a contract and an agreement which is not
enforceable by law is said to be void. Therefore, when the earlier
part of the section speaks of an agreement being di<covered to be
void it means that the agreement is not enforceable and is, therefore,
not a contract. It means that it was void. It may be that the parties
or one of the parties to the agreement ·may not have, when they entered into the agreement, known ttat the e.gmment \ITS in Jaw
not enforceable. They might have come to know later that the agreem,nt was not enforceable. The second part of the section refors to
a contract becoming void. That refers to a case where an agr«ment
which was originally enforceable and was, therefore, a contract,.
becomes void due to subsequent happenings.
In both these cases
any person who has received any advantage under such agreement
or contract is bound to restore such advantage, or to make ccmprnsation for it to the person from whom he received it. But where
even at the time when the agreeement is entered into both the
parties knew that it was not lawful and, therefore, void, there was
nJ contract but only an agreement and it is not a case where
it is discovered to be void subsequently. Nor is it a case of the ccntract
becoming void due to subsequent happenings. Theref,ore, s. 65 of the
Contract Act did not apply.
The Privy Council in its decision in Harnath Kaur v. lnder BahadurSingh (1923, 50 I. A. 69, 75-76) observed:
"The section deals with (a) agreements and (b) contrr.cts. The
distinction between them is apparent bys. 2; by clause (c) every
set of promises forming the consideration fer each ether
is an agreement, and by clause (h) an agreement enforceable by
Jaw is a contract. Section 65, therefore, deals with (a) agreements
enforceable by Jaw and (b) with agreements not so enfcrceable. By clanse (g) an agreement not enforceable by law is mid to.
·.706
SUPREME COURT REPORTS
(1975] 1 S.C.R.
be void. An agreement therefore, discovered to be void is one
discovered to be not enforceable by law, and, on the language
of the section would include an agreement that was void in
that sense from its inception as distinct from a contract that
becon1es void."
A full Bench of five Judges of the Hyderabad High Court in Budhu/al
v. Deccan Banking Company (AIR 1955 Hyd. 69) speaking through our
brothor, Jaganmohan Reddy J., as he then was, referred with approval
to these observations of the Privy Council. They then went on to nfer to
·the observations of Pollock and Mullah in their treatise en Indian Contract and Specific Relief Acts, 7th Edn. to the effect that s. 65. Indian
Contract Act does not apply to agreements which are void under s. 24
by reason of an unlawful consideration or object and there being no
other provision in the Act under which money paid for an unlawful
purpose may be recovered back, an analogy of English law will be the
best guide. They then referred to the reasoning of the learned authors
that if the view of the Privy Council is right namely that 'agreements
.discovered to be void' apply to all agreements which are ab-initio void
including agreements based on unlawful consideration, it follows that
the person who has paid money or transferred property to another for
.an illegal purpose can recover it back from the transferee under this
section even if the illegal purpose is carried into execution and both the
transferor and transferee are in pari delicto. The Bench then proceeded
tto observe:
"In our opinion, the view of the learned authors is neither
supported by any of the subsequent Privy Council decisions nor
is it consistent with the natural meaning to be given to the previsions of s. 65. The section by using the words 'when an agreement is discovered to be void' means nothing more nor Jess than:
when the plaintiff comes to know or finds out that the agre,ement
is void. The word 'discovery' would imply the pre-existence of
something which is subsequently found out· and it may be
observed that s. 66,
Hyderabad Contract Act makes the
knowledge (I Im) of the agreement being void as one of the prerequisites for restitution and is used in the sense of an agree-.
ment being discovered to be void. If knowledge is an essential
requisite even an agreement ab-initio void can be discovered to be
void subsequently. There may be cases where parties enter into
an agreement honestly thinking that it is a perfectly legal
agreement and where one of them sues the other or wants the
other to act on it, it is then that he may discover it to be void.
There is nothing specific in s. 65 Indian Contract Act or its
corresponding section of the Hyderabad Contract Act to make it
inapplicable to such cases.
A person who, however, gives money for an unlawful
purpose knowing it to be so, or in such circumstances that
knowledge of illegality or unlawfulness can as a finding of fact be
imputed to him the agreement under which the payment is made
. cannot on his part be said to be discovered to be void. The
·criticism that if the aforesaid view is right then a person who has
A
B
c
D
E
F
G
..
H
•
A
f
ll
•
c
D
E
F
G
.,
H
KUJU COLLIERIES v. JHARKHAND :-,!INES
(Alagiriswami, J.) 7 07
paid money or transferred property to another for illegal purpose
can recover it back from the transferee under this Section even
if the illegal purpose is carried into execution, notwithstanding
the fact that both the transferor and transfree are in pari de/icto,
in our view, overlooks the fact that the courts do not assist a
person who comes with unclean hands. In such cases, the defendant possesses an ?.dvartage ever the plantiff-in pari delicto
potior est conditio defendentio.
Section 84, Indian Trust Act however has made an exception
in a case
"where the owner of property transfers it to another for
illegal purpose and such purpcse is not carried it into execution
er the transferor is net as guilty as the transferee or the effect of
permitting the transferee to retain the property might be to defeat
the provisions of any Jaw the transferee must hold the property
for the benefit of the transfcrcr".
This specific provision made by the legislature cannot be taken
advantage. of in derogation of the principle thats. 65 Contract
Act in applicable where the object of the agreement was illegal
to the knowledge of both the parties at the time it was made.
In such a case the agreemem wculd be void ab-initio and there
would be no room for the subsequent discovery of that fact".
we consider that this criticism as well as the view taken by the Bench
is justified. It has rightly pointed out that if both. the transferor and
transferee are in pari delicto the courts do not assist them.
A Division Bench of the Andhra Pradesh High Court in its decision
in Sivaramukrisnaiah v. Narahari Rao (AIR 1960AP 186) held that :
"In order to invoke section 65 the invalidity of the contract or
agreement should be discovered subsequent to the making.of it
This cannot be taken advantage of by parties who knew from th~
beginning the illegality thereof. It only applies to a case where
one of the parties enters into an_ agreement under the belief that
it was a legal agreement. i.e. without the knowledge that the
agreement is forbidden by Jaw er opposed to public policy and
as such illegal. The effect of section 65 is that in such a situation
it enables a person not in pari delicto to claim restoration since
it is not based on an i]]egal contract but dissociated from it.
That is permissible by reason cf the section because the action
is nat founded on dealings which are contaminated by illegality.
The party is only seeking to be restored to the status quo ante.
section 65 also does not recognise the distinction between a contract being illegal by reason of its being opposed to public policy
or morality or a contract void fer other reasons. Even agreement
the performance of which is attended with penal consequences
are not outside the scope of section 65. At the same time Court;
will not render assistance to rerscns who induce innocent parties
to enter into contracts of that nature by playing fraud on
them to retain the benefit which they obtained by their wrong".
708
SUPREME COURT REPORTS
[1975] 1 S.C.R.
They also referred with approval to the earlier decision cf the
Hyderabad High Court in Budhu/a/ v. Deccan Banking Co. [ td.
(supra).
In a recent judgment of this Court in Shri Ramagya Prasad Gupta
& Ors v. Shri Mur/i Prasad & Ors. (C.A. Nos. 1710of1967 & 1986
of !968 decided on 11-4-1974). to which one of us was a party, this
Court quoted with approval the observation> of the Full Bench of
the Hyderabad High Court in Budhu'al v. Deccan Banking Company
(supra). These decisions are in accordance with the view we have taken.
The Mineral Concession Rules came into force on 25-10-1949.
As the lease came into force on September 7, 1950 and money was
paid on that date, the fact that there was an earier unregistered contract does not make any difference to the question at issue. Section 4
of the Mines and Minerals (Regulation and Development) Act. 1948
provides "no mining" lease shall be granted after the commencement
of this Act otherwise than ~n accordance with the rules made under
this Act. and any mining lease granted contrary to the provisions of
sub-section (I) shall be void and of no effect". Under Rule 45 of the
Mineral Concession Rules 1949 "no prcsrecting license or mining lease
shall be granted except to a person holding certificate of approval
from the Provincial Government having jurisdiction over the land
in the respect of which the concession is required". The plaintiff had
no certificate of approval from the State Government. Under Rule 49
"no granter of a prospecting license or a mining lease shall charge any
premium in addition to or in lieu of the prospecting fee, surface fee,
surface rent, dead rent or royalty specified in such license or lease".
There was a stipulation fer payment of a premium under the lease
deed in favour of the plaintiff. Therefore, clearly the lease in favour
of the plaintiff was contrary to the provisions of the Mines and
Minerals (Regulation & Development) Act, 1948 and the Mineral
Rules 1949 and as such void.
-
The further question is whether it could be said that this contract
was either discovored to be void or became void. The facts enumerated
above would sh.ow that the contract was void at its inception and this
is not a case where it became void subsequently. Nor could it be said
. that the agreement was discovered to be void after it was entered
into. As pointed out by the Trial Court the plaintiff was already in the
business of mining and had the advantage of consulting its lawyers and
solicitors. So there was no occasion for the plaintiff have been under
any kind of ignorance of law under the Act and the Rules. Clearly,
therefore this is not a case to which s. 65 of the Contract Act applies.
A
..
R
"
c
E
F
G
..
H
,,,
• •
II ..
•
N~
~
:!d
KUJU COLLIERIES V. JHARKHAND MINES
(Alagiriswami, J.) 709
A
Nor is it a case to which s. 70 or s.'72 of the Contract Act applies.
The payment of the money was not made lawfully, nor was it
done under a mistake or under coercion.
We agree with the Trial Court that the plaintiff should have been
aware of the illegality of the agreement even when it entered into it
B
and therefore s. 65 of the Contract Act cannot help it.
The appeal is therefore, dismissed but in the circumstances without
costs .
P.B.R.
Appeal dismissed.
13~Ml 85Sup. CIJ75