1 MNM IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE WRIT PETITION NO.1094 OF 2004 Bharatiya Bhavan Co-operative Housing Society Limited & Anr. ...Petitioners Vs. Smt. Krishna H. Bajaj & Ors. ...Respondents Mr. A.Y. Sakhare, Sr. Counsel i/b. Mr. M.N.Bhadrashete, Advocate for the Petitioners Mr. Zal Andhyarujina with Ms. Duhita Lewis i/b. M/s Goenka Law.Asso. Advocate for Respondent No.1. CORAM : SMT. ROSHAN DALVI, J. Date of reserving the Judgment : 11TH JANUARY, 2010 Date of pronouncing the Judgment :17TH FEBRUARY, 2010 JUDGMENT : 1. The Petitioner is the Co-operative Housing Society (Society) in which the Respondent No.1 (Respondent) is a member upon transfer of the membership of one Mrs. Preeti Umesh Khimji (Khimji) who held the shares of the Society in respect of flat Nos.24 and 25 in the Society building being Bhatia Bhawan at Marine Drive, Mumbai 400 020 (the premises). 2 2.The Respondent No.1 entered into an agreement with Khimji on 30th March 1992 for sale and transfer of the shares and the premises of Khimji to her for a consideration of Rs.3.21 Crores. It was agreed in the agreement dated 30th March 1992 by the parties that they would contribute equal to 3% of the consideration amount towards transfer fees. The parties had certain meetings with the office bearers of the Society being the Chairman (Petitioner No.2) and the Secretary. The parties have entered into correspondence with the Society as well as certain other authorities concerned with the transfer of the shares and the premises. Khimji contributed his share to the Respondent. The Respondent has paid the amount to the Society. This payment was made as a contribution to the Repair & Maintenance Fund of the Society. The Respondent was conferred membership of the Society and the share certificates duly transferred in her name was given to her. All this has transpired between April 1992 to July 1992 as shall be enumerated presently. 3.The Respondent challenged the receipt of the amount representing 3% of the consideration amount towards transfer fees as illegal demand for transfer fees having been paid under coercion in the guise and name of the building repair and maintenance fund for the first time by her Advocate’s notice dated 11th August 1994. Under that notice she demanded repayment of the amount paid to the Society with interest at 21% p.a thereon along with other amounts upon certain bills for repairs raised upon the Society. That having not been repaid by the Society the Respondent No.1 filed a dispute before the First Co-operative Court at Mumbai being C.C.No.1/1222/94. The learned Co-operative Court partly allowed the 3 dispute for refund of the amount paid to the Society under coercion with interest at 12% p.a thereon. 4. The Society preferred an Appeal therefrom to the Maharashtra State Co- operative Appellate Court which came to be dismissed. Both these orders are, therefore, challenged in this Writ Petition. 5.The Petitioners claim that the Co-operative Court had no inherent jurisdiction to try the dispute because it related to the transaction prior to the Respondent becoming a member of the Society and hence was not a dispute between the Society and its member. That contention has been rightly negatived. The dispute was not only for and in respect of the coercion practiced upon the Respondent prior to her being a member which related to the payment of the amount on representing 3% of the consideration under the transaction payable as transfer fees, but was also in respect of other amounts incurred by way of repair work by the Respondent and claimed from the Society after she became a member. The dispute was filed after the Respondent became a member. As per the judgment in the case of Ramagauri Keshvlal Virani Vs. Walkeshwar Triveni Co-operative Housing Society Ltd. 1999 C.T.J.198 the Co- operative Court would have jurisdiction. 6.The Petitioners have challenged the question of fact relating to the exercise of coercion upon her for the illegal demand of transfer fees. This dispute has been raised by the Respondent for the first time in August 1994 though the payment was made in July 1992. The Respondent examined her 4 constituted Attorney. His evidence has been considered by the Co- operative Court as well as the Co-operative Appellate Court with regard to the factum of the coercion, if at all, used. The parties have entered into extensive correspondence before and after the transaction of the Respondent with the Society for payment of that amount paid as transfer fees though stated to have been paid towards the building repair and maintenance fund which also shall be dealt with presently. 7. Upon the Respondent’s case that the payment was made upon an illegal demand of transfer fees by the Society which she paid under coercion, the aspect of repayment of the amount paid would require to be first considered. 8. The transactions relating to shares and premises in a Co-operative Society are governed under the Maharashtra Co-operative Societies Act 1960 (the Act) and the model bye-laws issued thereunder. The model bye-laws would govern the affairs of the Society, unless the Society has framed its own bye-laws. The Society in this case has adopted the model bye-laws. Bye-law No.40 thereof relates to transfer of shares and interest in the capital and property of the Society. It lays down the rights and entitlements of the Society as well as the members seeking transfer of their shares and interest in the capital and property of the Society. One of the requirements under bye-law 40(d) (vii) is the payment of premium by the member of the Society to the Society at the rate fixed in the AGM not exceeding Rs. 25,000/-. Any additional amount by way of donation etc., may be taken only with the consent of the member. 5 9. Indeed demand of money to be paid as transfer fees to the Society of an amount representing 3% of the consideration under the transaction of the sale/purchase of the flat is illegal except if it is donated by the member voluntarily. 10.The Act under which the bye-laws are framed, therefore, specifically forbids receipt of any premium in excess of Rs.25,000/-. Consequently, under Section 23 of the Indian Contract Act the consideration paid by way of transfer fees in excess of Rs.25,000/- would be void as forbidden by the model bye-laws under the Act. The relevant part of Section 23 of the Indian Contract Act runs thus :- “23.What consideration and objects are lawful, and what not.- The consideration or object of an agreement is lawful, unless- it is forbidden by law; or ........ ........ ........ ........ 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.” 11.Any member of the Society or any proposed member of the Society paying any transfer fees in excess of Rs.25,000/- would be entering into a void contract since the consideration thereunder is void being forbidden by the aforesaid law. Payment under bye-law 40(d)(vii) is independent of the 6 amounts claimed from members of the Society by way of charges of the Society under bye-law No.71(a)(iv). Such amounts can be claimed proportionately from the persons who are already members. 12. Mr. Andhyarijuna relied upon Section 65 of the Contract Act to enforce the obligation of the Society which had received advantage under the contract with the Respondent which was later discovered to be void by the Respondent. Section 65 runs thus :- 65. “Obligation of person who has received advantage under void agreement, or contract that becomes void – When an agreement is discovered to be void, or 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 from whom he received it.” 13.Mr. Andhyarujina would contend that the Society received an advantage under its agreement with the Respondent for payment of the illegal transfer fees and had the obligation to return it under the aforesaid provision. He contends that it was only in August 1994 that the Respondent discovered that her contract with the Society was void having the consideration which was unlawful. He relied upon the case of Thakurain Harnath Kuar Vs. Thakur Indar Bahadur Singh 1922 Privy Council 403. That was not a case of a contract forbidden by law. It was a case of an agreement which was later discovered to be void. That agreement was void only because a person had no interest in the lands he sought to transfer, but mere expectancy. He had this expectancy because the lands belonged to another through whom he claimed, but that other’s 7 widow had the interest which her husband during his life time had, under Hindu Law and under the Oudh Estates Act (which was analogous to Section 3 of the Hindu Women’s Right to Property Act which later came to be applied to the whole of India from 1937) and he was a collateral and succession to collaterals opened only after the widow’s death. Under these circumstances the transfer/contract to sell the land by him was void. That was not the case of an agreement being void under Section 23 of the Contract Act being prohibited by any other law. 14.The case of Kuju Collieries Ltd. Vs. Jharkhand Mines Ltd. A.I.R. 1874 S.C. 1892 also relied upon by Mr. Andhyarijuna was a case of a mining lease in favour of the Plaintiff. The lease was contrary to the provisions of the Mines and Minerals (Regulation and Development) Act, 1948 and the Mineral Concession Rules, 1949 made thereunder. The lease was void ab initio. The Lessor knew that legal position. It was observed that he was already in the business of mining at the time the lease was entered into. He had the advantage of consulting Lawyers and Solicitors. The Lease Deed was drawn up and prepared by Solicitors. The mining lease related to a “Salami” which was rendered illegal under the Mining Rules. It was held that the Lessor was not entitled to claim relief under Section 65 of the Contract Act. It was observed that Section 65 would come into play when the Plaintiff comes to know or finds out that the agreement is void or discovers later that the agreement is void. Knowledge is an essential requisite in such cases. It is observed that there may be cases where parties entered into an agreement honestly thinking that it is a perfectly legal agreement and then discovered it to be void, but a person who gives 8 money for an unlawful purpose knowing it to be so has knowledge of the illegality or unlawfulness, and if such a finding of fact can be imputed upon him he cannot say that he later discovered it to be void, since the law will not assist the person who comes with unclean hands. It is, therefore, held that the invalidity of the contract or agreement should be discovered subsequent to the making of it to derive benefit under Section 65 of the Contract Act. Such advantage cannot be taken by parties who knew from the beginning the illegality of the agreement. It was, therefore, held that such a party cannot be restored the advantage received by the other under Section 65 of the Contract Act. It was held that there was a distinction between an agreement and contract. Under Section 65 a contract was necessarily an agreement enforceable by law and that which was not void. The agreement which is later discovered to be void would mean an agreement which is not enforceable under Section 2 of the Contract Act and therefore, not a contract. It may be that the parties or one of the parties did not know that it was not enforceable at the time he or they entered into the contract. They may have come to know later that their agreement was not enforceable; that is that it was not a contract at all. The judgment further holds that if at the time the agreement was entered into, both parties knew that it was not lawful and was, therefore, void there was no contract at all, but only an agreement. Hence, that would not be a case of an agreement which is later discovered to be void – it was void ab initio. Therefore, Section 65 does not apply to such a case. 15.Mr.Sakhare strongly relies upon this enunciation of the law in this judgment for the recovery of the amount by the Respondent by restitution 9 of the advantage thereunder as claimed by the Respondent in the dispute. It is this aspect which is most material. 16.Further Mr. Andhyarujina claimed refund/repayment from the Society, to whom money was paid by the Respondent by mistake, under Section 72 of the Indian Contract Act. Section 72 runs thus:- “72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion. - A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.” 17.As an illustration of such payment which was ordered to be returned, he cited the case of Sri Sri Shiba Prasad Singh Vs. Maharaja Srish Chandra Nandi A.I.R. (36) 1949 Privy Council 297 which is the case of Mining lease entered into by the parties under which the lease rent was specified. The parties expected the freight to come down after a new railway line was to be constructed. The parties provided for the rate of reduction of the rent upon expected specified rates of reduction in freight. There were 2 separate lease rents that would be paid depending upon the extent of the reduction in freight. The Lessee paid the enhanced royalty under a mistake though the freight payable to the Railway was reduced. This was, therefore, paid under a mistake of fact as to the extent of freight payable. The Lessee then sought appropriation in the account with the Lessor with regard to the payment of royalty. The clause in the Lease between the parties was required to be interpreted. It was held that the Lessee was unaware of his right under the Lease. Considering the distinction between the applicability 10 of Section 21 and 72 of the Contract act and the mistakes of fact and law, it was held that the mistake in that case was “thinking that the money paid was due, while in fact it was not due”. It was held that even if this was the mistake of law the contract must stand and would be enforceable unless the Plaintiff was disentitled on principles of estoppal and the like. It was observed that in that case the money was paid under the belief it was legally due and that belief was mistaken. The case fell under Section 72 and the amount was payable. It must be appreciated that the payment in that case was not to be made under the contract which was void under Section 23 of the Contract Act. 18.Mr. Andhyarijuna contended that the mistake under Section 72 is the mistake of fact as well as law as laid down in various judgments and if a party enters into agreement under a mistake of law also the agreement would not be void. (See The Sales Tax Officer, Banaras Vs. Kanhaiya Lal Makund Lal Saraf A.I.R. 1959 S.C.135 (V 46 C20); Kleinwort Benson Ltd. Vs. Lincoln City Council 2 A.C. 349; also Shibu Prasad Singh Vs. Srish Chandra Nandi A.I.R 1949 P.C 297 and Steel and Wire Products Ltd. Vs. Superintendent of Commercial Taxes A.I.R. 1957 Patna 112). 19.The law laid down in these judgments indeed is that a mistake of law is also covered for suing under Section 72 of the Contract Act. However what is mentioned is the act of the parties under a “mistake” of any law. A “mistake” by its very meaning as shown in Black’s Law Dictionary Eighth Edition at page 1022 is: An error, misconception or misunderstanding; an erroneous belief. A 11 mistake of law is shown to be a mistake about the legal effect of a known fact or a situation – Also termed error in law; error of law. It is, therefore, some act done without knowledge of the Law. A mistake is explained in Advanced Law Lexicon by P. Ramanatha Aiyar Third Edition Volume 3 page 3037 is : An unconscious ignorance or forgetfulness of a fact, past or present, material to the contract, or a belief in the present existence of a thing material to the contract, which does not exist; some intentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence...... Mistake of law explained in Advanced Law Lexicon by P. Ramanatha Aiyar Third Edition Volume 3 page 3038 is: A mistake of law occures when a person having full knowledge of facts comes to a erroneous conclusion as to their legal effect. 20.None can “mistake” a Law which is known. Hence if the party knows that an act is prohibited by any law, he cannot be taken to have mistaken that there was no such law and committed his act. He does that act knowing it to be unlawful. He then violates Section 23 of the Contract Act. Hence under Section 72 if the parties act under a mistaken belief that the act is lawful and valid, she/he would fall within the protective umbrella of Section 72 to undo the damage done to her/him by such act. If however a party acts upon the knowledge that the act she/he does is void as being unlawful under any law he cannot be protected by and under Section 72. She/he would fall within the mischief of Section 23 instead. Taking all the 12 acts, whether known or unknown, by the parties as granting protection to such party for recovery of amounts paid under such contracts, would render the aforesaid part of Section 23 otiose and would be contrary to the known meaning of the term “mistake”. The contract of the parties must be considered to see the mistake or knowledge. 21.Further Mr.Andhyarijuna claimed repayment of the amount paid to the Society by the Respondent under Section 72 of the Contract Act as having been paid under coercion. Coercion as defined in Section 15 of the Contract Act itself is : “unlawfully detaining of a person with the intention of causing such person to enter into an agreement.” 22.Coercion would impinge upon the free consent of the party being coerced. The contract entered into upon such coercion would not be a valid contract since it was devoid of free consent. Consequently, it would be voidable, as being without free consent at the option of the party giving the consent, under Section 19 of the Contract Act. It, therefore, follows as a matter of corollary that if the consent was free consent that contract would be a valid contract. It is only because it is without free consent that it is allowed to be avoided by the aggrieved party whose consent was obtained under coercion. Consequently, therefore, when the Respondent claims that she entered into a contract under coercion of the Society (or its Chairman) she claims that she was unlawfully detained with an intention of causing hurt to enter into the contract which she entered into without her free consent. And consequently, therefore, if she had freely consented, that contract would have been a valid contract. The amount in excess of Rs.25000/- 13 paid to the Society would be vitiated only if it is paid under coercion i.e without the (free) consent of the Respondent. It is one thing to pay under coercion and quite another to pay under a mistake of Law. In the former there is no mistake; the payment can be avoided by the party paying under a contract which is voidable at her/his option. In the latter there is no question of coercion. The Respondent claims under both these aspects of Section 72 of the Contract Act. 23.It would, therefore, have to be seen : 1. Whether the Respondent knew at the time she made payment to the Society in July 1992 that the amount paid by her was for transfer of the shares and the premises of the Society from Khimji to her which was an illegal payment or whether she knew at that time that it was only the amount payable to the Society towards repair fund. AND 2. Whether the coercion as defined under Section 15 of the Contract act was practiced upon her to part with that amount. 24.Mr. Andhyarujina has sought to show from the agreement between the Respondent and Khimji and the correspondence that ensued thereafter between the Respondent and the Society, Khimji and the Society, as well as by the Respondent and Khimji with other legal authorities that the Respondent only learnt in August 1994 that the amount which the Respondent paid to the Society by way of transfer fee, but in the guise and 14 name of the building repair fund under coercion of the Society was an illegal payment which the Society was not entitled to receive. Was the Respondent acting under a mistake of Law ? OR was she acting under coercion ? Was the contract void or voidable or neither ? 25.On 30th March 1992 the Respondent entered into an agreement for sale of the premises with Khimji who was then a member of the Society. The agreement sets out the various covenants between the parties for the sale of the flats, the requirement of completing and signing the requisite transfer forms for transfer of the shares of the premises to the name of the Respondent and executing a Deed of transfer for effectively transferring the shares of the premises to her. It shows Khimji to be a member of Society and holding 2 shares therein under Share Certificate Nos.23 and 24 and as such member occupying the aforesaid two flat Nos.24 and 25 with attached adjoining terraces on the 7th floor of the Society building and entitled to 5 car parking spaces Nos.29,30,31,32 and 33 in the compound of the Society. 26.Clause 1 of the agreement sets out the consideration agreed to be paid by the Respondent to Khimji being Rs.3 Crores for the two flats and Rs.21 lakhs for the 5 car parking spaces aggregating to Rs.3.21 Crores. 27.Under Clause 3 of the agreement the parties agreed to make application before the Income Tax authority for sale and transfer of the shares and the premises to the Respondent. 15 28.Under Clause 4 of the agreement the parties agreed that Khimji would make an application to the Society for obtaining its N.O.C for the sale and transfer of the shares and the premises to the Respondent. It is further agreed that if the Society does not grant such N.O.C Khimji would refund the earnest money paid by the Respondent without interest. 29.Under Clause 5 of the agreement the sale was to be completed within 15 days of the aforesaid premises being obtained and a Deed of Transfer was to be executed by Khimji in favour of the Respondent. 30.The agreement also recites various declarations and covenants with only one of which this Petition is concerned i.e. Clause 7(viii) under which the parties agreed to pay the Society ½ the amount of transfer fee each prescribed by the Society which, as per the bye-laws then in force, came to 3% of the consideration amount. 31.The parties signed the execution clause of the agreement in the presence of their respective Advocates and Solicitors. Khimji has acknowledged the receipt of the earnest amount of Rs.15 lakhs. 32.The Respondent has shown the unregistered and inadequately stamped type-written copy of the agreement without the relevant stamp papers as well as the docket thereon. 16 33.This lis has arisen from the aforesaid clause 7(viii) under which the parties agreed to