Mohamad Syed Baba vs Universal Timbers Traders

Jaswant Singh, J.—This Letters Patent appeal is directed against an order dated April 27, 1974, passed by Thakur J. deciding issue No 2

framed by him on April 2, 1974, in Civil Original Suit No. 10 of 1973, in favour of the respondent.

The facts leading to this appeal are: The appellant herein obtained from the State Government a lease for extraction of timber from

compartments Nos. 33 to 36 of Basantgarh Range, Billawar Division, Jammu Circle, in the name of M/s. Farooq and Co. On July 15, 1972, there

came into existence an agreement ostensibly executed by the appellant in favour of the respondent giving exclusive right to the latter ""to carry out

the remaining work"" of the aforesaid lease. On April 26, 1973, the appellant brought a suit under Section 39 of the Specific Relief Act, for

cancellation of the aforesaid agreement dated July 15, 1972, alleging inter alia that he was not conversant with the English language and had

executed only a power of attorney in favour of the respondent on July 13, 1972, for carrying on the work of the aforesaid lease, that Shri Raj

Kumar, partner of the respondent firm, obtained his signatures on a number of papers on the pretext that a number of copies of the power of

attorney had to be prepared, that taking advantage of his simplicity and the fact that he was not conversant with the English language the said Raj

Kumar and one Krishen Dutt who was in league with Raj Kumar got the aforesaid agreements dated July 15, 1972 signed by him making him

believe that the deed was an agreement making the said power of attorney irrevocable and got it registered on the same day, that about April 19,

1973, the respondent made an application to the Forest Minister as well as to the Chief Conservator of Forests for transfer of his leasehold rights

in the aforesaid lease on the basis of the agreement dated July 15, 1972, that this move on the part of the respondent put him on the alert and

impelled him to apply for a copy of the agreement dated July 15, 1972, that on obtaining and examining the said copy he found that the respondent

had by misrepresentation and fraud manipulated a complete transfer of his leasehold rights which debarred him from operating the lease under the

aforesaid agreement with the State Government, and that in the circumstances, the agreement dated July 15, 1972, was null and void. The

appellant further pleaded that the agreement was also null and void as he was not competent to effect a transfer of the lease without the

concurrence of the lessor in view of the following clause in the aforesaid lease deed:

The purchaser (s) shall not be permitted to transfer his/their rights or liabilities under this agreement to any one without the previous sanction of the

competent authority sanctioning the lease.

The appellant impleaded the Government of Jammu and Kashmir and the Chief Conservator of Forests as pro forma defendants in the petition of

plaint of the aforesaid suit.

The respondent denied the allegations of fraud and misrepresentation and pleaded that the appellant voluntarily executed the aforesaid

agreement as well as a power of attorney on July 15, 1972 and got them registered on the same date and it was not open to him to plead that the

agreement was not effective as the concurrence of a third party was not there.

On the pleadings of the parties, the following two issues were framed on January 11, 1974:

1/ Whether the agreement dated 1571972 entered into between the parties is void as the same was obtained by fraud and misrepresentation? O.

P. P.

2/ In the event of Issue No. 1 being found against the plaintiff is the said agreement otherwise illegal and unenforceable in law? O. P. P.

On March 7, 1974, an application was made on behalf of the appellant before the learned trial Court praying that issue No. 2 which did not

require any evidence to be adduced be tried and disposed of as a preliminary issue. According to the request of the appellant, the learned trial

judge took up consideration of Issue No. 2 and decided the same in favour of the respondent vide his aforesaid order dated April 2, 1974, holding

that the appellant could not avoid the contract evidenced by deed dated July 15, 1972, taking advantage of his own wrong and that the

consideration or the object of the contract could not be said to be unlawful. It is against this order that the present appeal has been preferred.

Appearing on behalf of the appellant Mr. Mehta has submitted that the learned Single Judge has erred in deciding Issue No. 2 in favour of the

respondent. He has vehemently urged that the aforesaid agreement dated July 15, 1972, being hit by Section 23 of the Contract Act was void and

unenforceable in view of the aforesaid clause in the lease agreement between his client and the State which prohibited transfer of the leasehold

rights in favour of any one without the previous sanction of the competent authority sanctioning the lease.

We are afraid we cannot accede to the contention of the learned counsel for the appellant.

A transfer or assignment of right can be said to be void only if it is prohibited by law or is opposed to public policy. If the transfer is neither

prohibited by law nor opposed to public policy it cannot be held to be void merely because it is prohibited by a term of the contract by which the

right transferred has been conferred upon the transferor. We are fortified in this view by a catena of authorities which would be referred to

presently.

In Karsan v. Gatlu Shivaji, (1913) ILR 37 Bom 320 : 19 Ind Cas 442, where despite the prohibition contained in the liquor licence issued under

the Abkari Act (Bombay 5 of 1878) to take a partner, a partner was taken, it was held that the act cannot be regarded as illegal.

Again in Nazaralli Sayad Imam v. Babamiya Dureyatimsha, ILR 40 Bom 64 : AIR 1915 Bom 244 : 30 Ind Cas 913, where a forest

contractor took a partner in contravention of the licence given to him by the Forest Officer and subsequently on a suit being brought against him by

the latter to recover his half share in the profits accruing from the forest contract, took inter alia an objection that the suit was bad as being based

on an agreement which was void under Section 23 of the Indian Contract Act, it was held that although the terms of the license prohibited the

assignment of a share or interest in the licence and the forest officer could revoke the license, the licenee's act in taking a partner could not be

regarded as against law or defeating the provisions of law.

In Bhagwant Ganuji Girme v. Gangabisan Ramgopal, AIR 1940 Bom 369 where the terms of a lease of toll from the Government prohibited

an assignment of the same except with the previous permission of the Collector and empowered the Collector to revoke the lease or impose

penalty for breach of the terms of the lease and where an agreement assigning the lease without the aforesaid permission was made, it was held that

the agreement only offended the covenant in the lease and not any provision of law contemplated by Section 23 of the Contract Act.

Then again in Ram Chandra v. Jagan Nath, AIR 1957 Him Pra 70, where a person obtained a lease of bamboo forest from the forest

department and transferred his rights by an agreement to another without the permission of the forest department, it was held that there being

nothing in the Forest Act to prohibit such transfer the agreement of transfer was not one forbidden by law or opposed to public policy and,

therefore, void even though one of the conditions of the lease forbade such transfer.

In the instant case, it would be seen that the transfer or the Assignment of the rights in the aforesaid lease was not absolutely prohibited and no

provision of law has been brought to our notice prohibiting such transfer. The impugned agreement cannot, therefore, be held to be illegal.

The impugned agreement cannot also be held to be opposed to public policy.

In Vassandmal Davaldas v. Hiromal Mohanmal, AIR 1947 Sind 94 where the grant of a plot of land contained a term which precluded B. the

grantee, from disposing of any interest in it before any building had been erected but despite the clause 'B' entered into an agreement with 'A'

whereby he shared the plot with 'A' and later on took forcible possession of the piece of land allotted by him to 'A', whereupon 'A' was compelled

to bring a suit for possession and in defence it was contended by 'B' on the basis of the covenant in the grant that the agreement entered into by

him with 'A' was void under Section 23 of the Evidence Act either as forbidden by law or as opposed to public policy it was held:

The covenants in the grant were not provisions of law but even assuming they were so, the agreement alleged by A that the land was to be taken

jointly by A and B did not defeat any of them and hence was not unlawful, nor was it opposed to public policy"".

Adverting to the contention that the agreement was opposed to public policy, it was further observed in this decision:

The general head of ""public policy"" covers a wide range of topics, such as for example, trading with the enemy in time of war, stifling prosecution,

champerty and maintenance, and various other matters. But the doctrine of public policy is not to be extended beyond the classes of cases already

covered by it. No court can invent a new head of public policy.

Again in S. Meikole Udayar v. Periasami Konar, AIR 1967 Mad 449, it was held:

A contract can be said to be illegal if it is opposed to a statute or public policy. What is public policy is difficult to define. One can easily

understand what it is though the range of understanding may vary with individuals.

It cannot be said that public policy is involved in a contract which expressly prohibits assignment or subletting merely because it is made with

government authorities. Such a contract is just like any other contract and the fact that the Government is a party thereto would make no difference

to the contract.

Therefore, if a partnership is formed to carry on such a contract even though the contract expressly prohibits assignment or subletting, it can never

be termed as opposed to public policy and, therefore, illegal.

In view of the preponderance of judicial opinion referred to above, we are definitely of the view that the impugned agreement transferring or

assigning the rights in the aforesaid lease to the respondent in violation of the aforesaid covenant in the lease deed, though it may be capable of

being avoided by the Government which was not a party to the impugned agreement, cannot be held to be against the provisions of law as

contemplated by Section 23 of the Contract Act or as opposed to public policy. The contention of Mr. Mehta, is, therefore, overruled.

For the foregoing reasons, the appeal fails and is hereby dismissed with costs.

It will be open to the appellant to raise by means of an amendment of this pleading a plea to the effect that the impugned agreement is bad as it

violates Section 3 of the Registration of Contractors Act.

JALALUDDIN J.: I have had the advantage of going through the well reasoned judgment prepared by my learned Brother Jaswant Singh J. I

agree with my learned brother that the impugned agreement transferring the rights in the lease in favour of the respondent in contravention of the

relevant clause in the lease agreement does not offend the provisions of Section 23 of the Contract Act and therefore cannot be said to be void on

that score. There is no substance in the contention of the appellant that the agreement in favour of the respondent is void on the ground that there is

an express covenant in the lease agreement prohibiting the transfer of lease rights and obligations in favour of any one. This covenant has got no

statutory bearing or implication and will not therefore render the impugned agreement void. The transfer or assignment in favour of respondent is

indeed a violation of the covenant. The same can, however, be taken notice of and appropriately dealt with by the competent authority that has

sanctioned the lease. It is for that authority either to recognise the deed of transfer by according permission to it or to reject it by withholding

permission.

There is however, another aspect of the matter which Mr. Mehta, the learned counsel for the appellant, has brought to our notice that the

impugned agreement offends Section 3 of the Registration of Contractors Act and therefore is illegal and unenforceable at law. It, however,

appears that the learned Single Judge while deciding issue No. 2 has merely addressed himself to the consideration of the constitutional aspect of

the matter and has not gone beyond that in order to find out whether the impugned agreement defeated or did not defeat any other provision of

law. Under Section 10 of the Contract Act all agreements are contracts enforceable at law if they fulfil the requirements as laid down in that

section. According to the explanation appended to this Section an agreement is not enforceable at law if it does not conform to a law relating to the

registration of documents. Therefore, if the plaintiff appellant can successfully establish the proposition that the impugned agreement could not

validly be made as the same was in violation of the Registration of Contractors Act or defeated some of its provisions, it would follow that the said

agreement is unenforceable at law and would not create any rights or obligations in favour of or against the respondent. This, however, is a matter

which the plaintiff appellant can raise before the learned Single Judge by means of an appropriate motion.

I, therefore, concur with my learned Brother that the appeal be dismissed.