Case: Babulal Swarupchand Shah Vs. South Satara (Fixed Delivery) Merchant'S Association Limited &amp; Another

have got into anothers possession in consequence of some unlawful dealings between them, the true owner can never be allowed to recover those goods by an action. The necessity of such a principle to the interests and advancement of public policy is certainly not obvious. The suggestion that it exists is not, in our opinion, supported by authority. It would indeed be astonishing if (to take one instance) a person in the position of the defendant in Pearce v. Brooks, (1866) 1 Ex 213 supposing that she had converted the plaintiffs broughman to her own use, were to be permitted, in the supposed interests of public policy, to keep it or the proceeds of its sale for her own benefit. The principle which is in truth followed by the Courts is that stated by Lord Mansfield, that no claim founded on an illegal contract will be enforced, and for this purpose the words illegal contract must now be understood in the wide sense which we have already indicated, and no technical meaning must be ascribed to the words founded on an illegal contract; the form of the pleadings is by no means conclusive. More modern illustrations of the principle on which the Courts act are Scott v. Brown, Doering, McNab and Co., 1892-2 QB 724 and Alexander v. Rayson 1936-1 KB 169. But as Lindley, L. J., said at P. 729, in the former of the cases just cited :"Any rights which he (plaintiff) may have irrespective of his illegal contract will, of course, be recognised and enforced".13. The defendant seeks naturally to rely on the observations in Harry Parker Ltd. v. Monson (1940) 2 KB 590 : (1940) 4 All ER 199 at p. 203 :-"With regard to the second contention, I can see no difference in principle between the case of a principal, seeking to recover money handed to an agent for an illegal purpose and that of one principal seeking to recover money paid by him to another principal in pursuance of an illegal contract. In neither case will the Court assist the parties, whether the claim be to obtain money paid for an unfulfilled or partly fulfilled illegal purpose or by way of damages for breach of an illegal contract".Assuming that the rule should apply between principal and agent it is consistent with the rule as stated by Lord Mansfield in (1775) 1 Cowp 341. This case cannot help the defendant since in that case the amount sought to be recovered was given to the agent for an illegal contract and what a party himself could not do he could not do through the agent and, therefore, the rule applied. See Sykes v. Beadon, (1879) 11 Ch D 170.14. He also relies on the case in Goswami Shri Purushotamji Maharaj v. B. Robb, ILR 8 Bom 398. It appears that the defendant had paid the cess for several years except for the years 1875, 1876 and 1877. It also appears from the judgment that the defendant did not agree to be the agent of the plaintiff but the amount was levied from the supposed agent by way of compulsion and it is with reference to these facts that it was observed that the object of the agreement was of such a nature that, if permitted, it would defeat the provisions of Act XIX of 1844. The amount was being held by the defendants themselves against whom payment was to be enforced. The case, therefore, has no application.15. This Court has in Shivram Govind v. Viswanath Govind, 58 Bom LR 154: ILR (1956) Bom 185, considered the question. It is there said"as the claim against the defendant was not based on the illegality of the contract which had already been acted upon, the defendant was bound to pay the plaintiffs share to him".We are of the view that where the cause of action is not founded either on the illegal contract or on its breach, the partys right to possess his own chattels will be enforced against those who without any right detain the same or convert it to their own use even if it appears either from the pleadings or evidence led at the trial that they have come in possession of the defendants as a result of an illegal transaction.There can be no doubt that there are occasional exceptions to this rule, as suggested in Bowmakers case, 1944-2 All ER 579 at p. 583.16.The question whether or not the rule applies as between principal and agent is a much wider question.In the case of Haji Habib Haji Pir Mohamed v. Bhikamchand Jankilal Shop,in AIR 1954 Nag 306 each of the learned Judges have given strong reasons for the opposing views though they agreed to dismiss the appeal on another ground. We do not decide that question as in this case it is clearly not necessary to do so, since we are of the view on the above reasoning that the rule in question does not apply to the facts of this case. The Court below was clearly in error in holding that the plaintiff could not succeed, on the authority of this case.17. It is also argued that in this case all the members had not made payments in the company and until all the payments were made the plaintiff can have no right to recover the amount. Now, the plaint shows that three of the members had not made the payments. The rules of the company provide that if the amount due from debtor-members were not paid to the defendant No. 1 by the time provided then such members had to be declared defaulters. But it does not appear anywhere in the rule that unless those amounts were collected the creditor members would not be paid; if that is so, it stands to reason to hold that the creditor members would receive their amounts after deduction pro rata, which the company was bound to pay them. There is no substance in this argument either.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Now, this company was formed with an avowed purpose of regulating the dealing in forward transactions in several commodities. As such it had framed certain rules. The rules of the company show that the members parties who had made transactions with each other had to meet and settle their liabilities and after settling the liability of each other they had to fill up certain documents provided by the company. The rule also specifically provides that after filling up the forms and giving them to the Clearing agent, i.e. the Company defendant No. 1, the debtor members had to pay up the amount to the company within a fixed time as provided. It also further provides that the company after deducting a commission of one anna per rupee should distribute the amount to the creditor members towards their dues from the debtors-members. From the evidence also it appears that the transactions were entered into directly by the members with each other and the procedure which we have referred to above was thereafter followed in settling the transactions as has been admitted by the Chairman of the defendant No. 1-company, in his evidence. He says that after the clearing rate was declared, the creditor members and the debtor members concerned had to adjust their accounts and the balance was to be struck amongst them, and thereafter C form was filled in. Form D, however, was filled in by the debtor-members and submitted to their creditor members but form C was submitted to the Clearing Agent (the company) by the Creditor members. He has also further stated that after 12 Oclock on Monday the amount due was to be deposited with the clearing agent by the debtor members. That also is the case of the plaintiff. It is clear, therefore, that the agency of the defendant No. 1 was limited only to the extent of the collection of the amounts due from each of the members and after deduction of its commission payment to the creditor members, who were entitled to collect the amount from these debtor members. The company had nothing to do with the actual transactions themselves which were entered into by the members directly, with each other nor even with the settlements. Even if therefore, the Transactions were illegal, the agency itself was notit is not necessary that there should be any formal agreement expressly made for the purpose. Rule 24 which we have referred to earlier and the evidence of the chairman, lead to only conclusion that the relationship between the defendant and the plaintiff was that of an agent and a principal and the defendant No. 1 was the agent of the plaintiff for receiving the amounts from other members of the company. There is no substance in the argument that the defendant No. 1 was not proved to be the agent of thethe case of the State of Bombay v. Virkumar Gulabchand, 54 Bom LR 883 : (AIR 1952 SC 335  ), the accused was prosecuted for the breach of the provisions of the Essential Supplies (Temporary Powers) Act, 1946 read with the Spices (Forward Contracts Prohibition) Order, 1944, relating to turmeric. The Additional City Magistrate, First Class at Sangli, held that the accused was guilty and sentenced him to imprisonment and fine. On appeal the Sessions Judge, South Satara at Sangli, relied upon a judgment of this Court and held that the transactions in turmeric were not controlled under the provisions of the Spices (Forward Contracts Prohibition) Order, 1944, and quashed the conviction of the accused. An appeal by the State to the High Court also failed. Thereafter an appeal by the State to the Supreme Court, succeeded, and it was there held that turmeric was an article of food and that the provisions of the Spices (Forward Contracts Prohibition) Order, 1944, in their application to turmeric were saved under the Essential Supplies (Temporary Powers) Act, 1946. It was under the authority of this judgment that forward transactions in turmeric are renderedthat the rule should apply between principal and agent it is consistent with the rule as stated by Lord Mansfield in (1775) 1 Cowp 341. This case cannot help the defendant since in that case the amount sought to be recovered was given to the agent for an illegal contract and what a party himself could not do he could not do through the agent and, therefore, the ruleare of the view that where the cause of action is not founded either on the illegal contract or on its breach, the partys right to possess his own chattels will be enforced against those who without any right detain the same or convert it to their own use even if it appears either from the pleadings or evidence led at the trial that they have come in possession of the defendants as a result of an illegal transaction.There can be no doubt that there are occasional exceptions to this rule, as suggested in Bowmakers case, 1944-2 All ER 579 at p. 583.16.The question whether or not the rule applies as between principal and agent is a much wider question.In the case of Haji Habib Haji Pir Mohamed v. Bhikamchand Jankilal Shop,in AIR 1954 Nag 306 each of the learned Judges have given strong reasons for the opposing views though they agreed to dismiss the appeal on another ground. We do not decide that question as in this case it is clearly not necessary to do so, since we are of the view on the above reasoning that the rule in question does not apply to the facts of this case. The Court below was clearly in error in holding that the plaintiff could not succeed, on the authority of this case.Now, the plaint shows that three of the members had not made the payments. The rules of the company provide that if the amount due from debtor-members were not paid to the defendant No. 1 by the time provided then such members had to be declared defaulters. But it does not appear anywhere in the rule that unless those amounts were collected the creditor members would not be paid; if that is so, it stands to reason to hold that the creditor members would receive their amounts after deduction pro rata, which the company was bound to pay them. There is no substance in this argument either.The plaintiff has claimed a sum of Rs. 804-15-0 as interest at 6 per cent per annum on the amount claimed by the plaintiff. In the plaint he founds this claim as damages. There is no agreement averred, to pay the interest as claimed by the plaintiff. Mr. Albal, however, relies on notices, Exs. 43, 44, 65 and 67, which are telegrams, informing the defendant No. 1 that it would be liable to pay damages if the amount was not paid. This is not enough to sustain a claim for interest. It does not state what the rate of interest would be nor the particulars of the period. Moreover, if any amount were to be given by way of damages the plaintiff has not shown what are the damages that he has suffered. In this view of the matter he is not entitled to receive any amount by way of interest from the defendant No. 1.20. So far as the defendant No. 2 is concerned he was made a clearing agent by the defendant-company. He was therefore, clearly a servant of the company. There can, therefore, be no personal relationship of agent and principal between him and the plaintiff, there being no privity. He had deposited the amount collected by him as clearing agent from the debtor members in the Bank to the credit of the defendant No.Clearly therefore, the plaintiff is not entitled to a decree against the defendant No. 2 at all.