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1941 Supreme(SC) 19
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, LORD RUSSELL OF KILLOWEN, LORD ROMER, AND SIR GEORGE RANKIN.
BHOWANIPUR BANKING CORPORATION, LIMITED - Appellant
Versus
SREEMATI DURGESH NANDINI DASI - Respondents
On appeal from the High Court at Calcutta.
Decided On : June 23, 1941.
Solicitors for appellants :Hy. S. L. Polak & Co. Solicitors for respondent: Stanley Johnson & Allen.
Agreements to stifle criminal prosecutions in exchange for financial consideration or security are contrary to public policy and void under Section 23 of the Indian Contract Act, 1872, regardless of whether a legitimate debt exists.
Headnote:(A) Indian Contract Act, 1872 - Section 23 - Agreement to stifle prosecution - Public Policy - An agreement whereby a prosecutor agrees to discontinue criminal proceedings as part of the consideration received is illegal and void. The vindication of criminal law must be pursued in the interests of justice and not for the prosecutor's own advantage. (Paras 11-12)
(B) Evidence of Agreement - Agreements to stifle prosecutions are seldom documented in writing and must be inferred from the conduct of the parties and a survey of the surrounding circumstances. (Para 12)
(C) Validity of Security - If security is obtained to effectuate an unlawful agreement to abandon a prosecution, such security is invalidated if the provider's knowledge of the purpose is an irresistible inference from the facts. The existence of a legitimate debt is irrelevant if the agreement to stifle the prosecution is part of the consideration for the payment or security. (Paras 18-19)
Facts of the case:
A widow executed a registered mortgage bond to secure a loan, ostensibly to reduce her husband's debts to a bank. At the time, the bank had initiated criminal proceedings against the husband and son for conspiracy to cheat and defraud. Following negotiations and the execution of the mortgage, the bank petitioned the magistrate to discharge the accused, stating that they had made arrangements for the payment of moneys due. The widow contended that the mortgage was executed as consideration for the bank's promise to withdraw the criminal case, rendering the bond void.
Findings of Court:
The court found that the bank's petition to the magistrate, which linked the discharge of the accused to the "arrangements for payment," provided cogent proof of an agreement to stifle the prosecution. The mortgage was part of the terms of composition for offences, including non-compoundable ones. It was further held that the widow's knowledge of the criminal proceedings and the purpose of the mortgage was an irresistible inference from the circumstances.
Issues: Whether a mortgage bond executed as part of an agreement to withdraw criminal proceedings is void under Section 23 of the Indian Contract Act, 1872, and whether the mortgagor's knowledge of such an arrangement invalidates the security.
Ratio Decidendi: An agreement to abandon a criminal prosecution in exchange for financial consideration or security is contrary to public policy and void under Section 23 of the Indian Contract Act. Such an agreement is void even if a debt is actually due, provided the promise to stifle the prosecution is part of the consideration for the payment or security.
Result: Appeal dismissed.
Legal Category Hierarchy
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contract law
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validity of contracts
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public policy
- agreements to stifle prosecution
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public policy
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validity of contracts
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crime and sentencing
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criminal procedure
- compounding of offences
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criminal procedure
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property law
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mortgages
- mortgage bonds
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mortgages
Judgement
Law. Rep. 68 Ind. App. 144 ( 1940- 1941) Bhowanipur Banking Corpn. Ltd. v. Sreemati Durgesh
44
Appeal (No. 79 of 1939) from a decree of the High Court (June 6, 1938) which had reversed a decree of the Court of the Subordinate Judge, 24-Parganas (April 23, 1935).
The suit out of which this appeal arose was for the recovery of Rs. 63,236-10-3, being principal and interest due on a mortgage bond, dated June 27, 1925. The executant of the bond, the respondent, was the widow of one Kalidas Roy Chowdhury. The bond set out that Kalidas was indebted to the appellant bank in the sum of Rs. 1,78,965-4-7, that it was impossible for him to pay off the debt in full from his own resources, and that the mortgagor had determined to reduce her husbands debt as far as possible by borrowing money by mortgaging her own properties. By the document she borrowed Rs. 30,000 repayable with interest at the rate of nine per cent, per annum. The bond was registered.
The appellant bank instituted the present suit on December 19, 1933, claiming a decree for Rs. 63,236-10-3, with interest, future and pendente lite, and in default of payment a decree for sale. The defendant, in her written statement, alleged (inter alia) that the bank had brought a false criminal case against her husband and her eldest son, and that during the pendency of that case the bank undertook to withdraw it if she executed the mortgage bond in question, and that under the apprehension of her husband and son being sentenced to imprisonment, and not having had an opportunity of getting advice from a disinterested person, she executed the document in suit. She pleaded that the mortgage bond, having been executed with the object and consideration of getting the criminal case withdrawn, was illegal, inoperative and void in law.
The facts appear fully from the judgment of the Judicial Committee.
The Subordinate Judge decreed the suit for Rs. 60,000, with interest at the bond rate from the date of suit.
On appeal by the defendant the High Court (Nasim Ali and Henderson JJ.), in separate but concurring judgments, found that there was an agreement between the parties that the criminal case would be withdrawn if the dues to the appellant bank from Kalidas and his son were adjusted to the satisfaction of the appellant; that the object or purpose of the mortgage deed was the dropping of the criminal case ; that such object was illegal, and that the deed was therefore void. They accordingly passed a decree allowing the appeal and dismissing the suit.
1941. May 21, 22, 26. Sir Herbert Cunliffe K.C. and Wallach for the appellant bank. This was a simple suit on a mortgage bond, but when the defence appeared the whole character of the action was changed, the respondent alleging (inter alia) that the bank had brought a criminal charge against her husband and eldest son, but had promised to withdraw it if she (the respondent) would execute the mortgage in suit. She said, further, that the bank never gave, nor did she receive, any part of the consideration money alleged in the deed. That is a very sweeping case of fraud. It is submitted, first, that the High Court did not approach this case in the spirit in which a court should approach a charge of fraud, which must be clearly proved. The respondent, though a purdanashin lady, according to the evidence and the view of the Subordinate Judge, and the High Court do not appear to have disagreed, was an educated and intelligent woman, not without experience in business matters, and she had ample advice. The tests in Jones v. Merionethshire Permanent Benefit Building Society ([ 1891] 2 Ch. 587 ; [ 1892] 1 Ch. 173.) are to be applied in such a case as the present. In cases of this nature there must be sufficient evidence to justify the finding that the agreement said to be contrary to public policy, although not express—for it would seldom be in writing—must be implied in the circumstances. One must not be misled by mere elements of suspicion; it is
