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2000 DIGILAW 325 (AP)

Krishna Ceramics and Refractories, rajahmundry v. Sri K. V. Narayana, Rajahmundry

2000-04-26

B.PRAKASH RAO

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B. PRAKASH RAO, J. ( 1 ) THE defendant No. 1, the appellant herein, challenges the judgment and decree in O. S. No. 132 of 1983 dated 25-4-1986 on the file of the Subordinate Judge at rajahmundry wherein the suit seeking a declaration that the first defendant and not the plaintiff which is liable to pay the amount of Rs. 36,074-48 under a demand towards dues by the authorities under mining lease with interest and for granting a permanent injunction restraining the first defendant from operating Bommur and konda Guntur fire clay mines of the plaintiff was decreed. ( 2 ) AS per the plaint, the plaintiff is the lessor and the defendant No. 1, is the lessee in pursuance of a lease agreement dated 31-5-1978 for a period of five years commencing from 16-6-1978 to 15-6-1983 and the defendant No. 1 has taken over the leasehold interest in respect of the manufacture of ceramics and potteries and fire bricks etc. The plaintiff had a lease in the Bommur fire clay mine in R. S. No. 40 measuring Ac. 5-00 from the second defendant, the State of Andhra Pradesh. The defendant No. 1 under the lease was authorized to excavate and remove fire clay as a licensee from the mine after complying with the formalities under the law and use the clay in the said factory for manufacturing purposes. Therefore, in pursuance of such lease, the defendant no. 1 having excavated the clay and carried on mining operations and in view of specific clause contained in the lease deed undertaking to pay all such taxes etc. , it is the defendant No. 1 who is liable to pay the demand from the Department. The third defendant who is the Deputy Director of mines had given a demand notice on 17-6-1983 for a sum of Rs. 36,074-48 to wards royalties. Thereupon, the plaintiff issued a notice on 29-6-1983 calling upon the defendant No. 1 to pay the same within ten days. Another notice under Section 80 of the C. P. C. was also given on 22-6-1983 to the second defendant. In spite of the same, no payment was made by the defendant no. 1. Hence the suit. ( 3 ) IN the written statement of the first defendant, the lessee, it was admitted that there was a lease dated 31-5-1978 and that the same commenced on 16-6-1978. In spite of the same, no payment was made by the defendant no. 1. Hence the suit. ( 3 ) IN the written statement of the first defendant, the lessee, it was admitted that there was a lease dated 31-5-1978 and that the same commenced on 16-6-1978. However, it denied the liability towards any such demands from the Department of mines. It was stated that the defendant no. 1 did not carry on the mining operation on the alleged dated of inspection and for the period of respect of which the demand was made. Accordingly, the defendant no. 1 replied to the demand notice. The plaintiff had filed another suit in O. S. No. 212 of 1981 in respect of the same subject matter and thus the suit is not maintainable. Further, no such liability can be fixed on the defendant No. 1 unless a proper enquiry is made by giving an opportunity. ( 4 ) IN the written statement of the third defendant, which was adopted by the second defendant, it was stated that the suit is not maintainable. The mining lease was granted in favour of the plaintiff for a period of 20 years in pursuance of g. O. Ms. No. 678 dated 26-6-1976 and the same was in force. However, the authorization as given by the plaintiff in favour of the defendant No. 1 without the prior consent of the Government is not in accordance with the Rules and it amounts to a clear violation of the said Rules. Thus any such operation or lifting of material etc. , by the defendant No. 1 is also an offence. It was claimed that on 4-5-1983 when the mine was inspected, it was found that the operations were going on even after 30th september, 1980. It is further stated that defendants 2 and 3 are not necessary parties and there is no privity of contract with the defendant No. 1. ( 5 ) ON these and other allegations as found in the pleadings, the Court below has framed the issues. During the enquiry, the plaintiff had examined himself as P. W. 1 supported by P. Ws. 2 and 3. The defendant no. 1 examined himself as D. W. 1 and c. W. 1 was examined on behalf of the court. Exs. A-1 to A-29 and Exs. B-1 to B-15 and X-1 and X-2 were marked respectively. During the enquiry, the plaintiff had examined himself as P. W. 1 supported by P. Ws. 2 and 3. The defendant no. 1 examined himself as D. W. 1 and c. W. 1 was examined on behalf of the court. Exs. A-1 to A-29 and Exs. B-1 to B-15 and X-1 and X-2 were marked respectively. On a consideration of the evidence and material on record, the suit was decreed as against defendant No. 1 as prayed for and was dismissed against defendants 2 and 3. ( 6 ) IN this appeal, Sri V. L. N. G. K. Murthy, counsel appearing for the appellant has contended that in view of the finding as arrived at by the Court below dismissing the suit as against defendants 2 and 3 on the ground that the operation carried on by defendant No. 1 is illegal and contrary to the regulations, defendant No. 1 also gets exonerated on the very same reasoning as the contract itself is in violation of the law and opposed to public policy and hit by section. 23 of the Contract Act. And no appeal having been filed against the dismissal of the suit as against defendants 2 and 3, this appeal is not maintainable. Further, the very contract for payment of any such dues under the lease agreement is unenforceable and cannot be sustained in view of the principle "ex turpi causa non oritur actio". ( 7 ) IN reply, Sri C. V. Mohan Reddy, counsel for the respondent-plaintiff sought to sustain the decree on the ground that even if the contract is bad or illegal, it may not bind defendants 2 and 3 but in between the plaintiff and the defendant No. 1, it is valid and the defendant No. 1 is liable to discharge the demands in view of the specific undertaking in clause (15) of the lease agreement dated 31-5-1978. That apart d. W. 1 in his statement has admitted the liability of defendant No. 1 for the operations done though he stated that defendant No. 1 stopped the work after giving the notice. That apart d. W. 1 in his statement has admitted the liability of defendant No. 1 for the operations done though he stated that defendant No. 1 stopped the work after giving the notice. ( 8 ) IN view of the rival contentions raised by the Counsel, the questions which fall for consideration in this appeal are: (I) whether the defendant No. 1 can be made liable for the demand issued by the Department of Mines towards royalties in pursuance of clause (15) of the lease agreement; and (II) whether the said contract is unenforceable as opposed to public policy under Section 23 of the contract Act? ( 9 ) THE claim of the plaintiff in the suit is for the amounts in pursuance of the notice in Ex. A-7 dated 7-6-1983 issued by the third defendant to the plaintiff towards royalties, as undertaken by the defendant No. 1 under clause (15) of the lease agreement between the parties in the lease deed ex. A-1 dated 31-5-1978. The lease was for the period from 16-6-1978 to 15-6-1983, the leasehold being the ceramic factory for the purpose of manufacturing. The plaintiff had the mining lease from the defendants 2 and 3 for a period of 20 years. As per the terms under Ex. A-1, the defendant No. 1 was authorized to operate the mine and excavate the clay and use the same for the purpose of manufacture of ceramics, bricks etc. Accordingly, the defendant No. 1 carried on the said operations in the mine and there is no dispute to this extent. However, the first defendant states that it stopped and did not canry on the mining operations for the period of demand. And the inspection report by C. W. 1, an officer of the Department, amply shows that the mining operations were carried on. ( 10 ) CLAUSE 15 under Ex. A-1 reads as follows:"15. The clays from the lessor s mines in Bommur and Konda Guntur villages shall be mined by the lessee at his own cost for manager s salary, labour charges, allowances, royalties, mineral taxes, cesses, dead rent and all such other charges. The days so mined shall be used by the lessee in the leased factory for manufacturing purposes only and he shall not be entitled to sell the clay or supply the clay outside the factory. The days so mined shall be used by the lessee in the leased factory for manufacturing purposes only and he shall not be entitled to sell the clay or supply the clay outside the factory. The lessor is entitled to sell the clay for other parties on sharing the mine expenses and royalties etc. ,. . . . . . . " ( 11 ) IT is evident that the defendant No. 1 has undertaken for payment of all such taxes etc. , the primary liability of which is on the plaintiff as holder of the mining lease. ( 12 ) HOWEVER, as per the Rule No. 37 of the Mineral Concession Rules, 1960, no such further assignment or transfer can be done without obtaining the consent from the government. Rule 37, so far as it is relevant to the case on hand, reads thus:"37. Transfer of lease: (1) The lessee shall not, without the previous consent in writing of the State Government and in the case of mining lease in respect of any mineral specified in the first Schedule to the Act, without the previous approval of the Central government: (A) assign, sub-let, mortgage, or in any other manner, transfer the mining lease, or any right, title or interest therein; or (b) enter into or make any arrangement, contract or understanding whereby the lessee will or may be directly financed to a substantial extent by, or under which the lessee s operations or undertakings will or may be substantially controlled by any person or body of persons other than the lessee; ( 13 ) THERE is nothing on record to show that before or after Ex. A-l between the oarties, any such consent was obtained by them from the concerned authorities. Thus, under the scheme and the rules governing the grant of leases, such assignment or transfer is contrary to the statute like any other licences. There is no doubt, that under the clause, it is not merely payment of dues which was undertaken by the defendant no. 1 but in fact, the defendant No. 1 is allowed to carry on the operations of extracting the mineral and make use thereof. This is directly in the teeth of the mining Regulations and" prohibitions contained thereunder. Thus, this defeats the provisions of the law. 1 but in fact, the defendant No. 1 is allowed to carry on the operations of extracting the mineral and make use thereof. This is directly in the teeth of the mining Regulations and" prohibitions contained thereunder. Thus, this defeats the provisions of the law. In Kuji Collieries vs. Jharkhand Mines a case arising directly under the provisions of Mines Law, a transaction of similar nature, a lease in violation of the provisions, was held as void. Similarly, even partnerships entered in to in violation of the prohibition are held as unenforceable. [see: Dineshji vs. Abdul rasool2 and Dasari Satyanarayana vs. Kanditpatla Appa Rao3. ( 14 ) SECTION 23 of the Contract Act reads as follows:"23. What considerations and objects are lawful and what not? it is forbidden by law; or is of such a nature that, if permitted, it would defeat 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. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. " ( 15 ) THE whole purpose of the aforesaid provision is to make all such contracts illegal which are opposed to public policy. Any contract in violation of a particular provision in the statute would fall within such mischief and becomes illegal and unenforceable. Even the well known maxim ex titrpi causa non oritur actio goes to say that a Court of law will not lend its aid to enforce the performance of a contract which appears to have been entered into by both the contracting parties for the express purposes of carrying into effect that which is prohibited by law. This maxim is almost in accordance with the another maxim pacta quoe turpem causam continent non sunt observanda that is to say wherever the consideration which is the ground of the promise, or the promise which is the consequence or effect of the consideration, is unlawful, the whole contract is void. Therefore, in the nature of the term contained in clause 15 of Ex. A-l, permitting the defendant No. 1 to operate the mines under the very same lease is directly in the teeth of the prohibition contemplated by the mining Regulations. Therefore, in the nature of the term contained in clause 15 of Ex. A-l, permitting the defendant No. 1 to operate the mines under the very same lease is directly in the teeth of the prohibition contemplated by the mining Regulations. Therefore following the aforesaid principles, the clause and the nature of contract is void and unenforceable. The question as to whether the clause in the contract is valid as against defendant No. 1 will not have any basis in the eye of the law as once a contract is found to be prohibited under the law and void, no Court would lend any assistance for its enforcement. In pursuance of the said lease, the defendant No. 1 has virtually stepped into the shoes of the mining lease holder without any consent from the department and that itself would not entitle plaintiff with a claim permissible under the law. The statutory liability emanating under the mining lease cannot be passed off and not enforceable in a Court of law. Otherwise, by allowing any such claim as against defendant No. 1, it would only mean putting a seal to that which could not be done under the law as against defendant nos. 2 and 3. The Court below has not considered all these aspects and simply proceeded to treat the contract as a valid one in between the plaintiff and the defendant No. 1 though not being valid between the plaintiff and defendants 2 and 3 and thus decreed the suit as against defendant No. 1 which is totally contrary to the aforesaid principles. Accordingly it is held that clause 15 of the lease is void and unenforceable even against the defendant no. 1 and the suit claim by the plaintiff as against defendant No. 1 is not sustainable. ( 16 ) THEREFORE, the appeal is allowed and the judgment and decree of the Court below is set aside and the suit is dismissed as against defendant No. 1 also. In the circumstances, there shall be no order as to costs.