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IN THE HIGH COURT OF ALLAHABAD
B. Mukerji, Jagdish Sahai and S. N. Dwivedi, JJ.
OFFICIAL RECEIVER, JHANSI - Appellant
Versus
JUGAL KISHORE LACHHI RAM JAINA, HYDERABAD - Respondents
First Appeal 300 Of 1951
Decided On : 09/20/1962
CONTRACT - Voidable Contract - Rescission - Notice - Section 19, Indian Contract Act, 1872 - Section 86, Indian Trusts Act, 1882 - Insolvency - Section 28, Provincial Insolvency Act, 1920 - Held, the contract was voidable at the option of the defrauded party and not void ab initio. The defrauded party had the right to either treat the contract as void or to affirm it. The defrauding party would not have any rights under the agreement. The defrauded party had the option to rescind the contract by repudiating it or by obtaining a judicial rescission of it. The repudiation to be effective must be communicated to the other party. The defrauded party had not repudiated the contract to the knowledge of the defrauding party before the date of the application for adjudging him insolvent. The contract accordingly stood valid and operative on that date and would pass property in the money to the defrauding party subject to the right of the defrauded party to rescind the contract. The defrauding party had only a defeasible interest to the money. The Receiver took only his defeasible interest, for his interest could not be higher than the defrauding party's. Thus the interest that vested in the Receiver was defeasible and may be defeated by the result of the suit of the defrauded party. As the contract was induced by fraud, the defrauded party was entitled to a declaration that he was the owner of the money deposited in the Bank.
Fact of the Case:
Sri Chand, the proprietor of a firm, offered to sell and purchase grain to a registered firm at Jalna in Hyderabad known as firm Jugal Kishore Lachhi Ram. In pursuance of that general arrangement Sri Chand sent two railway receipts by post and simultaneously a Hundi for Rs. 20,000 through the Central Bank of India Limited to the plaintiffs. The plaintiffs, on presentation of the Hundi, declined to pay that much amount on the ground that the goods purporting to be covered by the railway receipts could not be worth more than Rs. 15,000/-. The Central Bank communicated this fact to Sri Chand who directed the bank to accept Rs. 15,000/- which, on demand, the plaintiffs paid to the Jalna Branch of the bank. The Jalna Branch transferred that amount to the Jhansi Branch, where it was credited to sri Chands account. In the meantime the plaintiffs discovered that the railway receipts did not cover any goods and directed to Jalna Branch of the Bank to have the payment of Rs. I5,000/paid by it to be withheld. Thereafter there was some telegraphic communication between the jalna Office and the Jhansi Office of the Bank and the Jhansi Office withheld the amount of Rs. 15,000/- with itself. On 27th July, 1950, the Insolvency Judge of Jhansi, in connection with application presented by certain creditors for adjudging Sri Chand as insolvent, directed the central Bank, not to pay that sum to any one and to withhold the same. Thereafter on 7-8-1950 the plaintiffs filed the suit giving rise to this appeal for a declaration that the lawful title to the sum of Rs. 15,000/- lying at the Jhansi Branch of the Bank and given by the plaintiffs under the hundi drawn by Sri Chand vested in the plaintiffs and that Sri Chand or his firm had no title to the same. During the pendency of the suit Sri Chand was adjudged insolvent on 30-9-1950 and the Official Receiver was also impleaded as a defendant in the suit.
Finding of the Court:
The court held that the contract was voidable at the option of the defrauded party and not void ab initio. The defrauded party had the right to either treat the contract as void or to affirm it. The defrauding party would not have any rights under the agreement. The defrauded party had the option to rescind the contract by repudiating it or by obtaining a judicial rescission of it. The repudiation to be effective must be communicated to the other party. The defrauded party had not repudiated the contract to the knowledge of the defrauding party before the date of the application for adjudging him insolvent. The contract accordingly stood valid and operative on that date and would pass property in the money to the defrauding party subject to the right of the defrauded party to rescind the contract. The defrauding party had only a defeasible interest to the money. The Receiver took only his defeasible interest, for his interest could not be higher than the defrauding party's. Thus the interest that vested in the Receiver was defeasible and may be defeated by the result of the suit of the defrauded party. As the contract was induced by fraud, the defrauded party was entitled to a declaration that he was the owner of the money deposited in the Bank.
Issues: 1. Whether the contract was voidable or void ab initio? 2. Whether the defrauded party had the right to rescind the contract? 3. Whether the defrauding party had any rights under the agreement? 4. Whether the defrauded party had the option to rescind the contract by repudiating it or by obtaining a judicial rescission of it? 5. Whether the repudiation to be effective must be communicated to the other party? 6. Whether the defrauded party had repudiated the contract to the knowledge of the defrauding party before the date of the application for adjudging him insolvent? 7. Whether the contract accordingly stood valid and operative on that date and would pass property in the money to the defrauding party subject to the right of the defrauded party to rescind the contract? 8. Whether the defrauding party had only a defeasible interest to the money? 9. Whether the Receiver took only his defeasible interest, for his interest could not be higher than the defrauding party's? 10. Whether the interest that vested in the Receiver was defeasible and may be defeated by the result of the suit of the defrauded party? 11. Whether the defrauded party was entitled to a declaration that he was the owner of the money deposited in the Bank?
Ratio Decidendi: 1. A contract induced by fraud is voidable and not void ab initio. 2. The defrauded party has the right to either treat the contract as void or to affirm it. 3. The defrauding party does not have any rights under the agreement. 4. The defrauded party has the option to rescind the contract by repudiating it or by obtaining a judicial rescission of it. 5. The repudiation to be effective must be communicated to the other party. 6. The defrauded party had not repudiated the contract to the knowledge of the defrauding party before the date of the application for adjudging him insolvent. 7. The contract accordingly stood valid and operative on that date and would pass property in the money to the defrauding party subject to the right of the defrauded party to rescind the contract. 8. The defrauding party had only a defeasible interest to the money. 9. The Receiver took only his defeasible interest, for his interest could not be higher than the defrauding party's. 10. The interest that vested in the Receiver was defeasible and may be defeated by the result of the suit of the defrauded party. 11. The defrauded party was entitled to a declaration that he was the owner of the money deposited in the Bank.
Final Decision: The appeal was dismissed with costs.
( 1 ) ALTHOUGH my learned brothers Jagdish Sahai and Dwivedi are agreed as to the result of this appeal, yet they have differed in regard to the reasons sustaining their respective conclusions on which they agree to a dismissal of the appeal.
( 2 ) I have had the advantage of reading the opinions of both and I find myself in agreement with the line of reasoning adopted by my learned brothel Jagdish Sahai. I also find that I have little to add to what has already been said, except pointing out that by adopting the line of reasoning followed by my learned brother Jagdish Sahai equity was not being deployed to override law. There was, in my view, nothing in either the Contract Act or the Sale of Goods Act which compelled a Court to uphold the fraud practised in the instant case.
( 3 ) I agree with the opinion of my learned brother Jagdish Sahai. Jagdish Sahai, J.
( 4 ) I have read the opinion of my brother pwivedi and agree with his conclusion that the appeal should be dismissed with costs. Inasmuch as my approach to the case is basically different from that of my brother Dwivedi, I have thought it necessary to embody my views in a separate judgment.
( 5 ) THE facts of the case are as follows: One Sri Chand was the proprietor of the firm Panna Lal balmukund of Jhansi. Professing to carry on the business of selling and purchasing grain he introduced himself to a registered firm at Jalna in Hyderabad known as firm Jugal Kishore lachhi Ram (hereinafter referred to as the plaintiffs), of which Lachhi Ram is the managing partner, and offered to send goods to be sold through the agency of the latter to which the plaintiffs agreed. In pursuance of that general arrangement Sri Chand sent two railway receipts by post and simultaneously a Hundi for Rs. 20,000 through the Central Bank of India Limited to the plaintiffs. The plaintiffs, on presentation of the Hundi, declined to pay that much amount on the ground that the goods purporting to be covered by the railway receipts could not be worth more than Rs. 15,000/ -. The Central Bank communicated this fact to Sri Chand who directed the bank to accept Rs. 15,000/- which, on demand, the plaintiffs paid to the Jalna Branch of the bank. The Jalna Branch transferred that amount to the Jhansi Branch, where it was credited to sri Chands account. In the meantime the plaintiffs discovered that the railway receipts did not cover any goods and directed to Jalna Branch of the Bank to have the payment of Rs. I5,000/paid by it to be withheld. Thereafter there was some telegraphic communication between the jalna Office and the Jhansi Office of the Bank and the Jhansi Office withheld the amount of Rs. 15,000/- with itself. On 27th July, 1950, the Insolvency Judge of Jhansi, in connection with application presented by certain creditors for adjudging Sri Chand as insolvent, directed the central Bank, not to pay that sum to any one and to withhold the same. Thereafter on 7-8-1950 the plaintiffs filed the suit giving rise to this appeal for a declaration that the lawful title to the sum of Rs. 15,000/- lying at the Jhansi Branch of the Bank and given by the plaintiffs under the hundi drawn by Sri Chand vested in the plaintiffs and that Sri Chand or his firm had no title to the same. During the pendency of the suit Sri Chand was adjudged insolvent on 30-9-1950 and the Official Receiver was also impleaded as a defendant in the suit. Two written statements were riled in the suit one by the Bank and the other by the Official Receiver. The Bank did not claim any rights in the sum of Rs. 15,000/-and expressed its willingness to pay the sum to whomsoever the Court held entitled to receive. The Official Receiver alleged that the sum belonged to the estate of Sri Chand and consequently claimed it in order to discharge the debts of Sri Chand. It was also pleaded that it was open to the plaintiffs to file a claim in the Insolvency proceedings and receive pro rata sum. The learned Civil Judge decreed the plain
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