Mahesh Chandra v. Kishan Prakash Gupta — 1981 DIGILAW 610 (ALL)

JUDGMENT V.K. Mehrotra, J. - These two Second Appeals are by the defendants in two suits brought against them by two different plaintiffs. The defendants are own brothers. The suits were for recovery from them of some amounts claimed as the balance of amount due to the plaintiffs towards accounts of partnership business between them and defendant Mahesh Chandra after the dissolution of the firm on Feb. 7, 1968. 2. The plaintiffs' case was that defendant Mahesh Chandra and the two them were partners in the business of general merchandise. Ramesh Chandra, the other defendant, was assisting his brother Mahesh Chandra in carrying on the business. Upon dissolution of the partnership when accounting was done a sum of Rs. 5000/- was due from the defendants. Since they were short of funds, the defendants executed promissory notes for Rs. 2500/- each is favour of the plaintiffs and agreed to pay interest at the rate of Re. 0.50 paise % per month. In the alternative it also was (argued) that in case it was found that the promissory notes related to the amount of pagari demanded by the defendants (?) for having permitted the plaintiffs (?) to carry on business in the shop hitherto used by the partnership firm as alleged by the defendants, the amount was even then recoverable from the defendants. 3. The defendants took the stand that the partnership between the parties had come to an end on October 12, 1965 and final settlement of account had already been done between them. The sum now sought to be recovered represented the amount of pagari which the defendants were required to pay to the plaintiffs for enabling them to continue doing business in the same shop in which the partnership was carrying on business and which earlier stood leased in the name of plaintiff Krishna Prakash, a cousin of the two defendants. 4. One of the issues which was framed by the trial court in each of the cases was whether the pronote and receipt in suit were executed in lieu of pagari as alleged by the defendants. This issue was answered by the trial fudge in the affirmative. After appraising the evidence on record, he found that the promissory notes in the two suits were executed in lieu of pagari amount and not in lieu of partnership dues. This issue was answered by the trial fudge in the affirmative. After appraising the evidence on record, he found that the promissory notes in the two suits were executed in lieu of pagari amount and not in lieu of partnership dues. The finding of the trial Judge was affirmed by the lower appellate court. 5. The trial Judge and thereafter the lower appellate court have both taken the view that the plaintiffs were entitled to recover the amount of these promissory notes from the defendants albeit the finding (was) that the amount was demanded by way of pagari. They have taken the view that the demand of pagari was neither immoral nor opposed to public policy and as such the promissory notes had been executed for a lawful consideration. This view of the courts below is being assailed by the defendants in these appeals. 6. It is permissible under the Contract Act to enter into an agreement for a lawful consideration and with a lawful object. An agreement of the nature made by free consent of the parties who are competent to contract amounts to contract under Section 10 of the Contract Act. The contract of which the object or consideration is unlawful in void under Section 23 of the Contract Act which inter alia provides that consideration or the object of an agreement is lawful unless the court regarded it to be immoral or opposed to the public policy. 7. In Gherulal Parakh v. Mahadeodas Maiya ( AIR 1959 SC 781 ) it was observed (in para 30 of the report) that "the word`immoral' is a very comprehensive word. Ordinarily, it takes in every aspect of the personal conduct deviating from the standard norms of life........ its varying content depends upon time, place and the stage of civilisation of a particular society.......... The provisions of Section 23 of the Contract Act indicate the legislative intention to give it a restricted meaning, .......... precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to head other than sexual immorality". These observations rule out the submission made on behalf of the defendants that the consideration for the two promossory notes being the demand of pagari amount, was immoral within the meaning of Section 23 of the Contract Act. 8. These observations rule out the submission made on behalf of the defendants that the consideration for the two promossory notes being the demand of pagari amount, was immoral within the meaning of Section 23 of the Contract Act. 8. The question which needs serious attention is whether the consideration for execution of the two promissory notes was unlawful as being opposed to public policy. Considerable arguments were addressed by the learned counsel for the parties on this aspect of the case and reliance was placed by them upon several decisions many of them not being very relevant to the question. The scope of inquiry, however, has been considerably narrowed down for the broad principles even in respect of this question were noticed and laid down by the Supreme Court in Gherulal Parakh's case (supra). In that case, the Supreme Court was called upon to decide whether a partnership agreement with the object of carrying on wagering transactions was lawful having regard to the provisions of Section 23 of the Contract Act or not. One of the submission was that the object was opposed to public policy and thus unlawful within the meaning of that provision. The Supreme Court examined the concept of public policy as also its application by the courts in England and in India to different situations. In para 23 it observed. "The doctrine of public policy ma., be summarised thus: public policy or the policy of the law is an illusive concept; it has been described as "untrustworthy guide," "variable quality," "uncertain one," "unrully horse," etc. the primary duty of a court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the court may relieve them of their duty on a rule founded on what is called the public policy for want of better words. the primary duty of a court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the court may relieve them of their duty on a rule founded on what is called the public policy for want of better words. Lord Atkin describes that something done contrary to public policy is a harmful thing, but the doctrine is extended not only to harmful cases but also to harmful tendencies; this doctrine of public policy is only a branch of common law, and just like any other branch of common law, it is governed by precedents; principles have been crystallised under different heads and though it is permissible for courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days." 9. A few years later in Murlidhar Agarwal v. State of U. P. ( AIR 1974 SC 1924 ) Mathew J. Speaking for the Supreme Court observed (in Paras 26 to 32) as follows: "28. The expression (public policy) has an entirely different meaning from policy of the law' and one much more extensive. Nevertheless, the terms `public policy' is used by the House of Lords itself apparently as synonymous with the policy of the law of the policy of a statute (see Hollinshead v. Hazleton 1916 - 1 AC 428). Yet it is clearly so used without intent to repudiate or disregard the distinction so clearly drawn in Egerton v. Biowniow, (1853) 4 HLC 1 at p. 105. It seems clear that the conception of public policy is not only now quite distinct from that of the policy of law but has in fact always been so except in some exceptional instances of confusion which have had no substantial effect on the general course of authority. See, W.S.M. Knight, `Public Policy in English Laws' 38, Law Quarterly Rev. 207 at p. 217-218. 29. The Courts have often repeated Mr. Justice Burrought's metaphor about public policy being an unruly horse. See, W.S.M. Knight, `Public Policy in English Laws' 38, Law Quarterly Rev. 207 at p. 217-218. 29. The Courts have often repeated Mr. Justice Burrought's metaphor about public policy being an unruly horse. Some Judges appear to have thought it more like a tiger and have refused to mount it at all, perhaps because they feared the fate of the young lady of Riga. Others have regarded it like Balsam's ass which would carry its rider nowhere. But none, at any rate at the present day, has looked upon it as a Pegasus that might soar beyond the momentary needs of the community. There is nothing remarkable in this because the topic itself is so elusive. See percy H. Winfield "Public Policy in English Common Law." 42 Harward Law Rev. 76. 30. "Public policy" has been defined by win field as "a principle of judicial legislation or interpretation founded on the current needs of the community." (See porcy R. Winfield "Public Policy" in English Common Law," 42 Harvard Law Rev. 76). Now, this would show that the interests of the whole public must be taken into account: but it leads in practice to the paradox that in many cases what seems to be in contemplation is the interest of one section only of the public and a small section at that. The explanation of the paradox is that the courts must certainly weigh the interest of the whole community as well as the interest of a considerable section of it, such as tenants for instance, as a class as in this case. If the decision is in their favour, it means no more than that there is nothing in their conduct which is prejudicial to the nation as a whole. Nor is the benefit of the whole community always a more tacit consideration. The courts may have to strike a balance in express terms between community interest and sectional interest. So, here we are concerned with the general freedom of contract which everyone possesses as against the principle that this freedom shall not be used to subject a class, to the harassment of suits without valid or reasonable grounds. Though there is considerable support in judicial dicta for the view that courts cannot create new heads of public policy. So, here we are concerned with the general freedom of contract which everyone possesses as against the principle that this freedom shall not be used to subject a class, to the harassment of suits without valid or reasonable grounds. Though there is considerable support in judicial dicta for the view that courts cannot create new heads of public policy. See Gherulal Parakh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406 at p. 440, there is also no lack of judicial authority for the view that the categories of heads of public policy are not closed and that there remains a broad field within which courts can apply a variable notion of policy as a principle of judicial legislation or interpretation founded on the current needs of the community. See Dennis Lloyd, "Public Policy" (1953), pp. 112-113. 31. Public policy does not remain static in any given community. It may vary from generation to generation and even in the same generation, public policy would be almost useless if it were to remain in fixed moulds for all time. 32. If it is variable, if it depends on the welfare of the community at any given time, how are the courts to ascertain it? The judges are more to be trusted as interpreters of the law than as expounders of public policy. However, there is no alternative under our system but to vest this power with judges. The difficulty of discovering what public policy is at any given moment certainly does not absolve the judges from the duty of doing so. In conducting an enquiry, as already stated judges are not hide bound by precedent. The judges must look beyond the narrow field of past precedents, though this still leaves open the question in which direction he must cast his gaze. The Judges are to base their decision on the opinion of men of the world, as distinguished from opinions based on legal learning.......... The Judges must consider the social consequences of the rule propounded especially in the light of the factual evidence available as to its probable results........" 10. The Supreme Court was considering the question whether it was open to a tenant to forego the protection of Section 3(1) of the U. P. Temporary Control of Rent and Eviction Act (U. P. Act III of 1947). The Supreme Court was considering the question whether it was open to a tenant to forego the protection of Section 3(1) of the U. P. Temporary Control of Rent and Eviction Act (U. P. Act III of 1947). It held that the benefit could not be waived by a tenant because, in its opinion, although Section 3 was primarily for the protection of the tenants only, the provisions contained in Section 3 were based upon public policy of protecting a weaker section of the community, namely, the tenants with a view to ultimately protect the interest of the community in general by creating equality of bargaining power. 11. In Anson's Law of Contract (24th Edition), it has been stated at pp. 334, 335 that there are a number of situations where a contract, cannot be enforced even though these are not the subject of any positive enactment, and that remedy is denied at common law by virtue of operation of rules of public policy. Further, at the present time there is an increasing recognition of the positive function of the courts in matters of public policy. 12. Section 105 of the Transfer of property Act recognises the distinction between premium and rent. It also defines `lease' as transfer of right to enjoy immovable property in, consideration of a price paid or promised or of a money etc. to be rendered periodically to a transferor by a transferee. Premium is the price while the money periodically paid is the rent. U. P. Rent Act III of 1947 provided in Section 4 that it will not be lawful for the landlord to take or receive for admitting a tenant to any accommodation any premium or any additional payment of any sort whatsoever over and above the tent payable therefor under the provisions of that Act. The U. P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 (U. P. Act XIII of 1972), which has replaced that Act, has, in addition prohibited by Section 4, receipt by a landlord of any premium or additional payment over and above the rent for admitting a tenant to any building and has also prohibited a tenant from taking or receiving money for admitting a sub-tenant or any other person. The scheme of both the Acts is similar namely, that any person who is in a position to admit another as a lessee or sub-lessee of an accommodation or building to which admittance is controlled by the provisions of these Statutes, shall not be entitled to charge any premium. This is a departure from what is provided by the enabling provisions in that regard in the T. P. Act. 13. There is nothing expressly contained in the T. P. Act or in these two State Acts in regard to the right of a lessee to exact any payment for handing over possession of premises of which he is a lessee or sub-lessee to another person, who may have been inducted as a lessee or sub-lessee by his own lessor. In other words, it is not contemplated that on transfer of possession from tenant to tenant the out-going tenant may be entitled to charge a premium from the incoming one. Transfer of possession of an accommodation or building from a .tenant to tenant is, in fact not envisaged by either of the two U. P. Acts. Both these Acts contemplate direction from the District Magistrate to the landlord to let out the premises to a person specified by him. That is the provision contained in Section 7 of the 1947 Act and that is what is provided for in Section 16 of the 1972 Act. An allottee became liable for rent from the date of the allotment under Rule 5 of the U. P. (Temporary) Control of Rent and Eviction Rules, 1949 unless he intimated in writing to the District Magistrate his refusal to accept the accommodation allotted to him. The tenant in occupation of any accommodation was under a statutory liability under Section 7(1)(b) of the 1947 Act to give notice in writing to the District Magistrate within seven days of his vacating it. It has been made explicit in Section 16(3)(c) of the 1972 Act that the allotment order shall specify a date by which the landlord was to deliver possession to the allottee. 14. The object of U. P. Act III of 1947, like that of U. P. Act XIII of 1972. was to control the letting and rent of residential and non-residential accommodation and of the eviction of tenants from them in the interest of general public. 14. The object of U. P. Act III of 1947, like that of U. P. Act XIII of 1972. was to control the letting and rent of residential and non-residential accommodation and of the eviction of tenants from them in the interest of general public. The enactment clearly evinced a policy of protecting the interest, in the words of the Supreme Court in Murlidhar's case,( AIR 1974 SC 1924 ), (supra), of "a weaker section of the community with a view to ultimately protecting the interest of the community in general." It was a beneficient piece of legislation like the one which followed it namely, U. P. Act XIII of 1972. 15. It is obvious that the benefit contemplated by these enactments would very nearly be rendered nugatory in case it is left open to an outgoing tenant to make an exaction from the incoming one for enabling a contract of tenancy between the landlord and him, albeit under the direction of the District Magistrate, to fructify by being subjected to a further requirement of payment to be made by the incoming tenant for getting possession of the premises demised to him to the outgoing tenant. The mischief which was sought to be abridged by statutory control of letting and rent, could manifest itself in the shape of exorbitant exaction by an outgoing tenant for enabling the incoming tenant to peacefully obtain possession of the premises allotted to him and obviating the necessity of recourse to public authority, through the provisions of the Act, for obtaining possession of the allotted premises. Harassment and undue delay to an incoming tenant would be implicit in the recognition of the right of an outgoing tenant to charge premium for giving up possession of a premises. 16. The liberty to enter into a contract for payment of any amount by way of pagan, for giving up possession of any premises to the outgoing tenant, in the present context of scarcity of accommodation, has without doubt the harmful tendency of involving an incoming tenant in unavoidable harassment The effect of such liberty would clearly be baneful upon the community as a whole. Law does not countenance enforceability of an agreement which would have a detrimental effect upon the community in the present days of scare accommodation particularly in urban areas. The agreement would clearly be void under Section 23 of the Contract Act. 17. Law does not countenance enforceability of an agreement which would have a detrimental effect upon the community in the present days of scare accommodation particularly in urban areas. The agreement would clearly be void under Section 23 of the Contract Act. 17. In Remmington v. Larchin, (1921 3 KB 404) the court of appeal was called upon to decide as to whether the charging of premium by a tenant from the succeeding one was contrary to Section 8(1) of the Increase of Rent and Mortgage interest (Restrictions) Act, 1920 under which there was a prohibition upon the lessor from making any charge. The Court of Appeal held that the provision only created restriction upon the landlord and did not prohibit the out-going lessee to charge premium from the incoming one. That was a decision wherein no question of the agreement being void for its consideration being opposed to public policy was involved or considered. 18. The concurrent findings of the two courts below being that the consideration for the agreement resulting in the promissory notes, so far as the appellants are concerned, was payments of the amount by way of pagari i.e. premium to the plaintiff for the latter handing over possession of the shop to them, it is clear that it was opposed to public policy. As such, it was void. It could not be enforced. The courts below have misdirectedl themselves in law in enforcing payment of the amount of these two promissory notes. Their decree cannot be upheld. 19. The appeals are allowed. The decree in both the cases is set aside and the plaintiffs suits are dismissed. The appellants shall, however bear their own costs.