R. Krishnaswami Konar vs The Executive Officer S.T. Ambalavanan

Natesan, J.—The Plaintiff, the decree in whose favour has been reversed in appeal, is the Appellant in the second appeal. The Defendant is

the Alangudi Panchayat, a body corporate formed under the Madras Village Panchayats Act, 1950. In exercise of its powers u/s 124 of the

Panchayat Act, to farm out collection of fees, a notification was published in the local Gazette of the auction of the right to collect the daily fees for

carts and other vehicles going into Alangudi transporting goods of sale to mills and other private places. The Plaintiff was the successful bidder at

the auction, the bid amount being Rs. 7,100, for the year in question, namely, from 1st April 1956 to 31st March 1957. His bid was confirmed by

the panchayat on 17th March 1956, and the Plaintiff deposited a sum of Rs. 1,790, one fourth of the total amount of the bid. He had to pay the

remaining amount in nine monthly instalments, the amount deposited to cover the last three months of the period of the lease. Later the Plaintiff

came to understand, that with reference to another panchayat area, the panchayat of Kallakurichi, the High Court had held that the collection of

fees similar to what had been farmed out to him was illegal, the panchayat having no powers to levy the same. The Plaintiff, therefore, on 14th June

1956, under Exhibit A-2, addressed a letter to the Executive Officer of the Defendant panchayat informing the officer of the panchayat of what he

had heard, of his apprehensions and requiring, the panchayat to add a term in the muchilika, for the panchayat to compensate him, in the event of

the lease having to be put an end to. Again, under Exhibit A-7, dated 11th October 1956, the Plaintiff, brought to the notice of the executive

officer of the panchayat that some local citizens were complaining that the collection made for the head-loads outside the shandi premises was

illegal, that the Plaintiff should not collect taxes for the carts in which articles were transported for sale and that the Plaintiff could collect taxes only

when the carts came into the shandi (market). The Plaintiff, in the said letter, asked for clarification of the position observing that in the opinion of

the Plaintiff the collections were permitted as per the original sale notification. It is needless to refer to similar correspondence that have passed

between the Plaintiff and the Defendant. The Defendant-Panchayat never clarified the position, but made demands on the Plaintiff of the instalments

that were falling due, and by the notice Exhibit A-12, dated 15th October 1956, the Plaintiff was informed by the executive officer that the

panchayat, at its meeting held on 15th October 1956, had, for non-payment of the instalments due in September and October, cancelled the

licence as and from 16th October 1956, and that from 16th October 1956 the Plaintiff should not collect the fees. There was a demand for the

instalments in arrears with threat of action in the event of non-payment. Even on 15th October 1956, the Plaintiff issued a notice to the panchayat

referring in the notice to the objections raised by one Govindaswamy by his letter, dated 10th October 1956 questioning the levy. It was pointed

out in the said notice that notice had been issued to the panchayat also. In this notice, dated 15th October 1956 (Exhibit B-9), the Defendant was

requested to arrive at a decision and to communicate the same as early as possible. On the cancellation of the lease by Exhibit A-12, the Plaintiff

followed up the earlier notice Exhibit B-9 with a notice, Exhibit A-14, wherein the validity of the cancellation was questioned. It was pointed out

that the amount in arrears had been paid by cheque and that there was no ground for cancelling the lease on the ground of non-payment. The

Plaintiff stated that he had stopped the collection of daily fees in terms of the notice, dated 15th October 1956, that he had not only lost moneys to

the tune of about Rs. 2,000 but had also been deprived of a sum of Rs. 2,000 the profits which he would have made and that there was also a

deposit of Rs. 1,790 with the Defendant which the Defendant was entitled to return. Deducting a sum of Rs. 805 as arrears of instalments due to

the Defendant, the Plaintiff claimed a sum of Rs. 3,195, from the Defendant besides claiming return of the deposit of Rs. 1,790. It is needless to

refer to the rest of the correspondence.

On 6th April 1957, the suit, out of which the present second appeal arises was instituted for the recovery of a sum of Rs. 4,994-8-0, made up

of Rs. 3,204-8-0 as due from the Defendant by way of damages and compensation and a sum of Rs. 1,790, the deposit, which the Plaintiff

claimed he was entitled to in reimbursement. In the plaint, the Plaintiff refers to the illegality of the levy and the liability of the Defendant to

compensate him besides refunding the deposit of Rs. 1,790. In the written statement, there is no acceptance of the position that the levy is illegal.

The Defendant has nowhere taken a stand that the levy was illegal and the contract with the Plaintiff therefore void. Even the circular, dated 15th

June 1954 (Exhibit A-1) is not very enlightening as to the position, and, as already stated, the several letters of the Plaintiff to elicit from the

Defendant a decision in the matter as to the legality of the levy remained unanswered. The learned District Munsif, discussing the validity of the

levy, came to the conclusion that it was ultra vires of the powers of the panchayat. This finding has not been canvassed before me by either party,

and it has not been canvassed even in the lower appellate Court. On the finding that the levy was ultra vires, the learned District Munsif denied the

Plaintiff his claim for damages and compensation. In view of the illegality of the levy, the question whether the termination of the lease by the

Defendant was valid or not, it was held, did not arise for consideration. However, the learned District Munsif held that the Plaintiff would be

entitled to relief u/s 65 of the Indian Contract Act. The trial Court held that the present was a case where an agreement was discovered to be void

by the Plaintiff on the date of Exhibit A-2, i.e., 14th June 1956. In his evidence, the Plaintiff stated that he came to know of the illegality only at that

time. From the plaint also it is clear that by 14th June 1956 he got knowledge of the want of right on the part of the Defendant to collect the fees.

This date is material, as from that date the question of limitation, which has been raised, would have to be considered. Rejecting the contentions put

forward by the Defendant to relief in favour of the Plaintiff u/s 65 of the Indian Contract Act and holding that Section 107 of the Village Panchayats

Act, 1950, did not apply to the claim to bar the remedy, the suit was decreed for the amount of Rs. 2,417-7-0 being the amount paid by the

Plaintiff to the Defendant. It is made up of the auction deposit of Rs. 25 paid on 5th March 1956, the amount of Rs. 1,790 deposited on 22nd

March 1956, and the lease instalment amount of Rs. 607-7-0 paid for the month of April, all amounts paid before the knowledge of the illegality.

On appeal, the learned Subordinate Judge took the view that the plaint is based on the cancellation of the contract by the Defendant and that a

claim, u/s 65 of the Contract Act cannot exist side by side with the cause of action under the contract itself for breach. It was held that the Plaintiff

having pressed also the claim for damages and compensation on the basis of a valid contract, he was precluded from claiming relief u/s 65. In this

he purported to follow the decision in New Churulia Coal Co. Ltd. Vs. Union of India (UOI), . The learned Subordinate Judge further held inter

alia that the principle of the doctrine in pari delicto potior est conditio Defendant is applied to the case and that no relief could be granted to the

Plaintiff u/s 65 of the Contract Act. It was also held that, u/s 107(2) of the Madras Village Panchayat Act, the suit should have been instituted

within six months of the date on which the cause of action arose, and that as knowledge of the illegality of the transaction must be taken to be on

14th June 1956, the suit filed on 6th April 1957 was out of time.

Now, in second appeal, learned Counsel appearing for the Plaintiff contends that the view of the learned Subordinate Judge on, the applicability

of Section 65 of the Contract Act to the case is erroneous. He points out that in Paragraph 18 of the plaint-sufficient averments have been made to

bring the case u/s 65 of the Contract Act. No doubt, there is no reference to Section 65 of the Contract Act as such, but in Paragraph 18, the

Plaintiff states that the Defendant, having no power to collect or lease such right, has illegally received the amount of Rs. 3,548 from the Plaintiff

which he had remitted, and the Defendant was not entitled to the same and should pay back the amount to the Plaintiff. Again, a statement is made

as follows:

The Defendant should pay the said amount, as he has illegally received from the Plaintiff by way of lease amount.

Reference is also made to the Defendant assuming authority which he had not and claim is made for damages on breach of warranty of authority

and allegations are made of fraud and misrepresentation as to the contract. But Paragraph 18 closes with the averment:

In any event the Plaintiff is entitled to reimbursement and the Defendant is bound to return. the benefit it has received.

This claim for reimbursement of the benefits received is specifically met by the Defendant in his written statement. In Paragraph 13, it is stated

that the Plaintiff had made an overall profit on the transactions which disentitles him to claim any refund or compensation or reimbursement. In

paragraph 15, it is stated that the Plaintiff was bound to account for the huge profits he had made out of the transactions before he could seek to

claim refund or compensation for alleged losses.

It cannot, in the circumstances, be said that the Defendant was taken by any surprise by the grant or relief u/s 65 of the Contract Act and that

the claim u/s 65 should not be allowed to the Plaintiff. Except that there has been no reference to Section 65, averments have been made in the

plaint and have been met by the Defendant in his written statement.

Now to consider the question whether it is open to give relief to the Plaintiff, when he has claimed relief in the plaint also on the basis of a

wrongful termination of the contract: The learned Counsel for the Appellant relied upon the decisions in Harnath Kunwar v. Indar Bahadur Singh

ILR (1922) All 4179, 184 (P.C.) and Babu Raja Mohan Manucha v. Babu Manzoor Ahmad Khan (1943) ILR 18 Luck. 130, 143, 145 (P.C.)

on this part of the case. The case of Harnath Kunwar v. Indar Bahadur Singh ILR (1922) All 4179 (P.C.) arose out of a suit for possession of the

villages specified in the plaint on the basis of an instrument of transfer by way of sale with prayer for the payment of money as alternative. Both the

Courts in India held that the transfer was of an expectancy and inoperative; and the claim for recovery of money was held to be barred by

limitation. Before the Board, the claim was based on Section 65 of the Contract Act. Their Lordships of the Judicial Committee observed:

So framed, the Plaintiff''s claim to compensation rests, not on any principle or formula of English law, but on the words of this section, and it has to

be seen whether the facts of this case come within its scope.

Proceeding, their Lordships observed:

The agreement here was manifestly void from its inception, and it was void because its subject matter was incapable of being bound in the manner

stipulated.

Though this aspect of the case has mot been satisfactorily presented or developed in the pleadings and the proceedings before the lower courts,

their Lordships think there are materials on the records from which it may be fairly inferred in the peculiar circumstances of this case that there was

a misapprehension as to the private rights of Indar Singh (transferor) in the village which he purported to sell by the instrument of the 2nd January

1880, and that the true nature of those rights was not discovered by the Plaintiff or Rachpal Singh earlier than the time at which, his demand for

possession was resisted, and that was well within the period of limitation.

It was thus that the agreement was discovered to be void, and the discovery, in their Lordships, view was one within the words and the meaning of

Section 65 of the Contract Act.

Their Lordships gave the Plaintiff a decree for the money paid. The next case, Babu Raja Mohan Manucha''s Case ILR (1943) Luck. 130,

143, 145 (P.C.), was a suit on a mortgage. The mortgage deed contained a personal covenant. The suit was instituted on 9th August 1934 on an

instrument of mortgage which was dated 12th August 1919. In the plaint, relief was sought for sale of the mortgaged property and by enforcement

of the covenant. The learned trial Judge held that the mortgage in question was barred under Paragraph 11 of Schedule 3. Code of Civil

Procedure, Code, and the claim on the personal covenant was held barred by limitation. In the first appeal in India, the Plaintiffs contended that

they were atleast entitled to relief u/s 65 of the Indian Contract Act, but the Chief Court of Oudh, however, affirmed the decree of dismissal leaving

the Plaintiffs to seek to their remedy by a separate suit, since the claim u/s 65 was not specifically pleaded. In the appeal before the Privy Council,

by their petition of appeal and by their case, the Plaintiffs contested the finding of the Courts in India both as regards the invalidity of the mortgage

and as to their claim on the personal covenant being statute barred. They also insisted upon their right to relief u/s 65 of the Contract Act. Before

the hearing however, while insisting upon the validity of the charge created by the deed, dated 12th August 1919, learned Counsel for the

Appellants abandoned the claim under the personal covenant and asked that if the security be held invalid, the Plaintiff should be given relief u/s 65

of the Contract Act, and under the direction of the Board tendered a formal minute to that effect. Having held that the security was invalid, while

considering whether Section 65 should be applied, their Lordships observed:

On this view two matters require consideration by way of defence. Can it be said that the claim u/s 65 is barred by limitation, or that the Appellants

having adhered to the contract cannot now claim to repudiate? And if neither of these defences can be made out, ought the Appellants to be

refused restitution in this suit by reason that Section 65 was not pleaded as a separate ground of claim in the plaint?

Proceeding further, their Lordships observed:

Their Lordships have already expressed in this judgment their view that the transaction in question in the present case was an open and honest

transaction and think that its invalidity was at the time obscured by the difficulty in applying paragraph 11 of the Third Schedule correctly; to the

particular facts of the execution proceeding and to the terms of the orders as recorded. In these circumstances they are of opinion that in the

special circumstances of the case the security of 12th August 1919, was not discovered to be void until after the present suit was instituted on 7th

August 1934.

On this view no question of limitation can arise u/s 65 since the circumstances giving rise to their right to rescind did not come to the Plaintiff''s

knowledge until after action brought.

A decree for money was given reversing the decrees of the Courts in India.

When the decision in New Churulia Coal Co. Ltd. Vs. Union of India (UOI), relied upon in the Court below went up in appeal as New

Churulia Coal Co. Ltd. Vs. Union of India (UOI), Das Gupta C.J. observed as follows:

I have, therefore, come to the conclusion that the mere fact that a claim u/s 65 of the Indian Contract Act on the basis that the contract had been

discovered to be void, was not made by the Plaintiff in his plaint, is not by itself a sufficient reason why he should not be allowed to raise that point.

Where further facts require to be investigated, it would be treasonable to proceed by way of an amendment of the plaint to add such arguments.

Where, however, further investigation of facts is not necessary, the Court would be justified in giving the Plaintiff relief under the provisions of

Section 65 of the Indian Contract Act even without a formal amendment of the plaint.

That was case where a claim u/s 65 was not made at all in the plaint, and the Court had to consider the question whether the Plaintiff should be

allowed to raise an issue as regards relief u/s 65 of the Indian Contract Act. The suit had been framed for recovery of a sum of money on the basis

of the contract and an alleged failure of consideration for the contract. The learned Chief Justice in that case was prepared to allow the Appellant

to raise the question of relief u/s 65 of the Contract Act, subject to leave being given to the Defendant-Respondent to make a claim for set off in

respect of the advantage to which it would in its turn be entitled to be restored. But however, as the relief u/s 65 of the Contract Act introduced, a

fresh cause of action, Section 80 of the CPC was held to be a bar. It was observed:

It may be mentioned that before us Mr. Roy formally abandoned the claim on the cause of action as based on the contract and also that he made a

formal prayer for amendment of the plaint to introduce his claim on the basis of Section 65. If Section 80 of the CPC had not stood in the way, I

would have been prepared to allow the Plaintiff to raise this plea for relief u/s 65 even without an amendment. That, in my opinion, cannot be done

because of the provisions of Section 80. Those provisions equally prevent us from allowing any amendment to be made before a notice as required

u/s 80 has been served.

The other learned Judge only expressed that an issue u/s 65 should not normally be allowed to be raised in the absence of a specific pleading

to the effect, necessary for a proper determination of the claim u/s 65, and observed that as no notice embodying the new cause of action u/s 80 of

the Code had been served upon the Defendant, it was not possible to accede to the prayer for amendment of the plaint.

Though no doubt, in this case, the Plaintiff has not claimed relief in the alternative and in the prayer column claim for damages and

compensation and a claim for refund of the sum of Rs. 1,790 are made cumulatively, still, as I read the plaint, it looks as if the Plaintiff thought he

was entitled to the profits and compensation also, besides reimbursement of the benefit received. Anyway, he has accepted the position that he

was entitled to relief only u/s 65. On the basis that the contract was void, and did not prefer any appeal where he was denied damages by the trial

Court. In this connection, reference may also be made to the decision in Srinivas Ram Kumar Vs. Mahabir Prasad and Others, . The suit arose out

of a claim for specific performance on the basis of a contract to sell a house. The Plaintiff had parted with a sum of Rs. 30,000. The defence was

that there was no contract to sell the house of the Plaintiff that the story of contract to sell was false but however the Plaintiff had been approached

for a loan and he had advanced a loan of Rs. 30,000. The trial Court found that the contract of sale was not established, but the Plaintiff paid a

sum of rupees 30,000 by way of loan, and granted a money decree. The appellate Court reversed the decree, as no case of loan had been made

by the Plaintiff in the plaint and no relief was claimed on that basis. In restoring the decree of the trial Court, the Supreme Court referred with

approval to the decision of the Judicial Committee in Mohan Manucha''s case ILR (1943) Luck. 130 (P.C.) and observed as follows:

It is true that it was no part of the Plaintiff''s case as made in the plaint that the sum of Rs. 30,000 was advanced by way of loan to the Defendants

second party. But it was certainly open to the Plaintiff to make an alternative case to that effect and make a prayer in the alternative for a decree

for money even if the allegations of the money being paid in pursuance of a contract of sale could not be established by evidence. The fact that

such a prayer would have been inconsistent with the other prayer is not really material. A Plaintiff may rely upon different rights alternatively and

there is nothing in the CPC to prevent a party from making two or more inconsistent sets of allegations and claiming relief thereunder in the

alternative. The question, however, arises whether in the absence of any such alternative case in the plaint it is open to the Court to give him relief

on that basis. The rule undoubtedly is that the Court cannot grant relief to the Plaintiff on a case for which there was no foundation in the pleadings

and which the other side was not called upon or had an opportunity to meet.

As regards the applicability of the doctrine in pari delicto potior est conditio Defendant is. Learned Counsel appearing for the Respondent, if I

may say so, rightly, did not support the view of the learned Subordinate Judge. It must be noticed that the transaction in question was an open and

honest transaction and the invalidity of the levy was not apparent to either of the parties. The proposed auction had been published in the local

Gazette and the Plaintiff was a bidder at the public auction. The Plaintiff was dealing with a statutory body and had been addressing letters

requiring clarification of the position, in view of the information that he had subsequent to the auction received about the invalidity of a similar levy.

The decision in Writ Petition No. 592 of 1953 was given in March 1954, and when a public body farms out by auction by publication in the

Gazette, the right to collect daily fees, in respect of vehicles coming into the Panchayat area or transporting goods for sale to milk and other private

places, the Plaintiff have assumed that the Panchayat had power to levy the fees. In the writ petition referred to, a resolution of the Kallakurichi

Panchayat requiring licence on payment of a fee, if articles or animals are sold or exhibited for a sale on the road or in a portion of the road came

up for consideration. It was held that the local authority was incurring no extra expenses on account of the use of the roads by cars or carts in

which articles for sale were transported or by the hawkers who carried their wares on their heads and that the fee was in essence a tax and it was

ultra vires of the powers of the panchayat. The circular, Exhibit A-1, could not be said to be very clear as to the invalidity of the levy in the present

case and, it must be noted that the Defendant had not accepted the position that the levy was ultra vires and that the Plaintiff had no right to make

the collections. In fact, the cancellation of the lease was for non-payment of instalments, the Defendant insisting on the payment of the instalment

amounts. For the applicability of Section 65, the invalidity of the contract or agreement should be discovered subsequent to the making of it, and it

cannot be taken advantage of by the parties who knew from the beginning the illegality thereof. It applies to cases where both the parties or one of

them enters into an agreement under the belief that it was a legal agreement, that is, without the knowledge that it is forbidden by law or opposed

to public policy or would defeat any provisions and as such was illegal. The effect of Section 65 is that, in such situations, it enables the person not

in in pari delicto potior est conditio Defendant is to claim restoration. The claim for refund or restoration is not based on the illegal contract but is

dissociated from it. It must be noted that the Defendant in this case was exercising the power given to it u/s 124 of the Panchayat Act to form out

the collection of fees due to it, under the Act or any rule, by-law or regulation made thereunder.

Counsel for the Respondent however contended that there is some kind of election in this case by the Plaintiff to stand by the contract after

knowing its invalidity, and he is therefore precluded from claiming relief u/s 65, and drew my attention to the decision in Mohan Manucha''s case

(1943) ILR 18 Luck 130 (P.C.) already referred to. If the contract is void, there can be no question of affirming the contract or electing to abide

by it. In Mohan Manucha''s case (1943) ILR 18 Luck 130 (P.C.) besides the mortgage there was a personal covenant to pay. Before the Judicial

Committee, the learned Counsel had abandoned the claim under the personal covenant. After noticing that the course taken by the learned Counsel

for the Appellant showed proper appreciation of the difficulty of insisting on the personal covenant and put the right of his clients to relief upon a

safer ground, their Lordships observed as follows:

The principle underlying Section 65 is that a right to restitution may arise out of the failure of a contract though the right be not itself a matter of

contractual obligation. If it be settled law that the incapacity imposed on a judgment-debtor by paragraph 11 of the Third Schedule is an incapacity

to affect his property and not a general incapacity to contract, it follows that the covenant to repay is not made void by the mere operation of the

paragraph. But the lender, who has agreed to make a loan upon security and has paid the money, is not obliged to continue the loan as an

unsecured advance. The bottom has fallen out of the contract and he may avoid it. If he does so avoid the contract, he brings himself within the

terms of Section 65 and within the principle of restitution of which it is an expression whether for all purposes adequate or exhaustive need not here

be considered. In the present case, the loan was not to be repayable until after three years. It can hardly be thought that if the invalidity of the

security had been established at the end of six months, the lender would have been obliged to allow his money to remain outstanding without

security for the whole three years. Ordinarily, if the invalidity of the security is not suspected until after the time for repayment has arrived, the

lender will have nothing to gain and something to loose by repudiating the contract at that stage. But that will not always be his position. In India the

bar of limitation for a suit to enforce the security is imposed at the end of twelve years, and for a suit on the personal covenant at the end of six

years. Not uncommonly it happens that a mortgage relying upon ample security has incautiously allowed his claim on the covenant to become time

barred. That may or may not be the Appellant''s position; the Courts in India have thought it was. But while the Appellant''s lack of precaution

would not increase their rights, it would not take away from them their right, if they think it to their advantage to refuse to be bound by the contract

of loan when the basis of contract has gone. They can refused to be bound by the contract and rely upon the right to recover their money which

arises to them, not under any contract, but as a matter of restitution by reason that no contract subsists. Unless and until they do so, however, they

can have no right to recover on the footing of Section 65. They cannot have at one and the same time a right to insist that they have a valid

subsisting special contract governing the transaction of loan and entitling them to a specific rate of interest and a right to say that their money was

advanced under a void agreement.

Proceeding their Lordships observed on the question of election:

Again, their Lordships think that it would be unreasonable in this case to regard the Appellants as having affirmed the contract of loan as subsisting,

by reason of any arguments addressed to the Courts in India hypothetically, or way of alternative to their main contention, which has through out

been that the transaction of 12th August 1919, is not hit by the provisions of paragraph 11. Neither Court in India gave the Appellants a decree

upon the personal covenant and the Chief Court would not permit Section 65 to be entertained as a basis for relief. In the circumstances it cannot

be said that there has been an omission to repudiate within a reasonable time which evidences an election to affirm the personal covenant or that

the Appellants have by their act, and conduct treated the contract as subsisting after the facts grounding the right to rescind came to their

knowledge. Election to affirm must, if to be gathered from action, be gathered from unequivocal acts.

It is plain from the extract of the judgment of the Judicial Committee that the election or affirmation of the contract their Lordships were

referring to was in relation to the personal covenant. The covenant to repay there was not void by reason of paragraph 11 of Schedule 3, as

observed by their Lordships earlier, and it would be open to the Plaintiff therein to affirm and stand by it; whereas, in this case, the contract is

wholly void and there can be no question of any election to abide by the contract.

Counsel for the Respondent however pointed out that the Plaintiff, while insisting on refund ought to have offered to return the benefits he had

received under the contract and that there was no such offer in the contract. It was also argued that an account would have to be taken of the

collections the Plaintiff had made, which, but for the farming out, would have been made by the Defendant. It was contended that these collections

which would otherwise go to the Defendant should be considered advantage which the Plaintiff had received under the agreement subsequently

discovered void.

In my opinion, when there has been no dishonesty on the part of the Plaintiff, the Plaintiff should not be denied relief on the plea that in the

plaint there is no offer to return the advantage which the Plaintiff had under the agreement. The Plaintiff''s case is that he had incurred heavy

expenses for collecting the amounts, had appointed permanent and temporary staff and had incurred expenses on other items connected with the

collections. These amounts, according to him, had been spent out of the collections and he had incurred loss of Rs. 2,000 by them. In the plaint, he

claims besides the loss, loss of profits. Whether and to what extent the Plaintiff would be entitled to deduct the expenses he had incurred from the

collections in assessing the advantage he had received under the agreement is a matter that would have to be gone into on the Defendant''s demand

for an account of the collection and for set off if the Defendant is entitled to the same. Of course it goes without saying that the advantage that

either party has to restore is advantage received before the discovery that the contract was void. The trial Court has not considered this aspect of

the matter, while granting relief to the Plaintiff. If the Plaintiff is to be given relief u/s 65, it can only be subject to the claim of the Defendant for set

off, and, for this purpose, the case will have to be remitted to the trial Court for enquiry, the parties being permitted to amend their pleading

suitably to bring out the questions now in issue. It is stated for the Plaintiff that the books of account of the Plaintiff have already been exhibited in

the trial Court.

The next question for consideration is whether the suit is barred by limitation. The Defendant has not taken any point as to want of proper

notice u/s 107 of the Madras Village Panchayats Act (X of 1950). While the trial Court held that Section 107 of the Panchayats Act did not apply

to this claim for refund, the learned Subordinate Judge has held contra. The finding of the trial Court that the cause of action for the claim u/s 65

would commence on 14th June 1956 has been affirmed by the learned Subordinate Judge, as already observed. The suit has been filed on 6th

April 1957, more than eight months after the cause of action arose. It is contended for the Plaintiff that, as the Defendant did not take the stand that

the levy was ultra vires, the cause of action would commence only on the finding given by the trial Court that the levy was ultra vires. But it cannot

be overlooked that the Plaintiff, both in his plaint as well as in his evidence as P.W. 1, admits knowledge of the illegality on 14th June 1956, and, in

the circumstances, the finding of the Courts below that the date of commencement of the cause of action for the claim u/s 65 is 14th June 1956

must be accepted.

The relevant portion of Section 107 of the Madras Village Panchayats Act, 1950, may be set out:

(1) Subject to the provisions of Section 108, no suit or other legal proceeding shall be brought against any panchayat...in respect of any act done

or purporting to be done under this Act or in respect of any alleged neglect or default in the execution of this Act or any rule, by-law, regulation or

order made under it, until the expiration of two months next after notice in writing, stating the cause of action, the nature of the relief sought, the

amount of compensation claimed and the name and place of residence of the intended Plaintiff has been left at the office of the panchayat....

(2) Every such proceeding shall, unless it is a proceeding for the recovery of immovable property or for a declaration of title thereto, be

commenced within six months after the date on which the cause of action arose or in the case of a continuing injury or damage, during such

continuance or within six months after the ceasing thereof.

The words are comprehensive, and all suits except proceedings for the recovery of immovable property or for declaration of title thereto

would come under the shorter period of limitation. The provision in this section has a long history and this section is a reproduction ipsissimis verbis

of the corresponding provision of the Madras Local Boards Act, XIV of 1920, viz. Section 225, therein. It may be pointed out that the Madras

Local Boards Act, 1920 has not even been repealed in toto, but u/s 136 of the Village Panchayats Act, it is amended in the manner set forth in

Schedule IV of the Panchayats Act and is made applicable to the District Boards. By virtue of the amendment, the Madras Local Boards Act,

1920 is now termed the Madras District Board Act of 1920. Learned Counsel appearing for the Appellant contends that, in interpreting and

defining the scope of Section 107 the prior decisions u/s 225 of the Madras Local Boards Act must be taken into consideration and they should

govern the interpretation of the present Section 107.

It is an established canon of judicial interpretation that if a statute upon which a particular construction has been put in the past, is re-enacted in

the same words, it must be taken that the construction of the words has the sanction of the Legislature. So far as the present point is concerned the

provision is substantially the same form has been in the statute book from 1884 as Section 156 of the Local Boards Act V of 1884. There were

amendments to the section by Act VI of 1900 which brought it nearer to the present section. There is a corresponding provision Section 350 in the

Madras District Municipalities Act (Act V of 1920). These provisions have been interpreted by a series of decisions through the decades limiting

their applicability only to suits for compensation and damages. I need refer only to the decision in Appu L. Rm. Lakshmanan Chetti (died) and

Another Vs. The Union Board of Devakottai, , where Madhavan Nair J., considered the decisions on Section 225 of the Local Boards Act, and

the corresponding provisions in the District Municipalities Act. There is a full discussion therein of the decisions of the other Courts bearing on

similar provisions. That was a suit for a declaration that the Defendant-Union Board was not entitled to levy profession tax from the Plaintiff and for

the recovery of the tax so collected. The question was whether notice was required u/s 225 of the Madras Local Boards Act of 1920. It must be

noted that the provisions as to notice and the shorter period of limitation are co-extensive except in regard to suits for immovable property and for

declaration of title to immovable property. A dissenting note was struck to the uniform course of decisions in the decision in Pothuru Swamy Babu

Vs. The Union Board, by Krishnan Pandalai J. The learned Judge observed that the Privy Council had condemned on more than one occasion the

practice of construing Indian statutes like the Madras Local Boards Act which are from time to time wholly repealed or re-enacted or extensively

amended by the language of those which they replaced or of similar legislation elsewhere in India or England on an assumption that no change in

the law was intended and thereby declining to give effect to the words. That was a suit for refund of house-tax on the ground that the levy was

illegal, and it was held by the learned Judge, Krishnan Pandalai J., that the suit was not excluded from the operation of Section 225. This conflict

gave rise to the Full Bench decision in Panchayat Board, Tiruvothiyur v. Western India Matches Company ILR (1939) Mad. 566 (F.B.). The Full

Bench decision is binding on me not only with regard to the principles that should govern the interpretation but also in the actual interpretation of

the section. The suit that gave rise to the Full Bench was for refund of taxes, which, according to the Plaintiff, were illegal and ultra vires of the

Panchayat Board of Thiruvothiyur. The contention on behalf of the Defendant-Panchayat was that the suit was barred by limitation, because it had

not been brought within six months of the date of collection, as required by Section 225(2) of the Local Boards Act, which corresponds with

Section 107(2) of the present Village Panchayats Act. At page 583 of the report Leach C. J., observed:

Where the Courts have consistently interpreted the law in a particular way for many years it is for the Legislature and not for the Court to effect a

change, if change is desirable. As I have indicated Section 225 of the Madras Local Boards Act stands substantially as it was in 1900. Since 1900

there have been two amending Acts and numerous decisions of this Court interpreting the section in the same way ; in fact an unbroken line but for

the decision of Krishnan Pandalai, J. In Barras v. Aberdeen Steam Trawling and Fishing Co. (1993) A.C. 402 Viscount Buckmaster said:

It has long been a well-established principle to be applied in the consideration of Acts of Parliament that where a word of doubtful meaning has

received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context must be

construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it.

Viscount Buckmaster went on to quote the words of James L.J. in Ex parte Compbell in re Cathcart (1870) ILR Ch. 703 where he observed:

Where once certain words in an Act of Parliament have received a judicial construction in one of the superior Courts, and the Legislature has

repeated them without alteration in a subsequent statute, I conceive that the Legislature must be taken to have used them according to the meaning

which a Court of competent jurisdiction has given to them.

The last amendment having been made before the decision of Krishnan Pandalai J., and this Court having repeatedly interpreted the section as

applying only to suits for compensation or damages it must be taken that the Legislature intended it to be interpreted in this way.

Now, Section 225 of the Local Boards Act thus judicially interpreted limiting its scope to suits for compensation or damages is retained in the

Madras District Boards Act and bodily reproduced as Section 107 of the Village Panchayats Act. There is nothing to suggest that the Legislature

intended a different interpretation to the provision in the Madras Village Panchayats Act. Mr. R. Rajagopala Iyer, learned Counsel appearing for

the Respondent quoted the decision in Athimannil Muhammad v. Malabar District Board (1931) ILR Mad. 746 and contended that the decision

directly applied to the facts in this case and the suit was barred by limitation. That was a suit against a District Board filed more than six months

after the date of the accrual of the cause of action. It was a suit for damages on the ground that the President of the District Board improperly

cancelled a contract of lease for one year of the tolls in certain places which was stated to have been entered into by him with the Board through its

Vice-President. The question which came up for consideration in that case was whether or not the action was in respect of an act done or

purporting to be done in pursuance of execution or intended execution of the Act. Varadachariar J., who delivered the judgment for the Bench

observed at page 749:

The real test is whether what is complained of is some act done in pursuance of the statute In cases where there is no dispute as to the existence of

a contract, all further rights and liabilities between the parties are governed by the ordinary law relating to contracts ; and it is true enough, in such a

case, to say that the rights and liabilities of the parties in respect of the contract are matters of ordinary law and not matters governed by the

statute. But where as in the present case, we find that the cancellation of the acceptance of the Plaintiff''s offer is the necessary result of what the

President thought, in accordance with the terms of the Act as ha interpreted them, his duty to accept, viz., the highest tender and he did this on the

footing that the Vice-President''s acceptance of the Plaintiff''s tender is not a compliance with the Act--we cannot say that the question does not

relate to an act done under the statute. The right to levy tolls is a special privilege conferred by the statute upon local bodies and, under the terms

of Section 106(1), Local Boards are authorized either to manage the collection of the tolls themselves on through their own agency or to lease

them out. In either case what the President as representing the Board does in connection with the leasing out of the right to levy tolls is undoubtedly

an act done in execution of his powers or duties under the Act.

As already stated, the action in that case was one for damages, and it was held that the action was clearly within the terms of Section 225,

Sub-sections (1) and (3) of the Local Boards Act and that the suit failed on the ground that it had been instituted more than six months after the

accrual of the alleged cause of action. The scope of the principles which underlay the above decision has been discussed in more than one case--

vide, Padmanabhumi Narasimhadas v. District Board Kistna AIR 1933 Mad. 945, by Varadachariar J. himself in Sivasankaram v. Taluk Board

Penukonda ILR (1939) Mad. 566 (F.B.) and by Rajagopalan J. in S. Narayanan Vs. The District Board, . A long line of decisions have held that

suits on contract where the contract was only incidental to the exercise of statutory power, were not hit by the statutory restrictions embodied in

Section 225 of the Local Boards Act. The decision in Athimannil Muhammad v. Malabar District Board (1934) ILR 58 Mad. 746 above referred

to has made it clear that even in respect of contracts, where the contracts was entered into in direct exercise of a statutory power, it would come

within the scope of Section 225 of the Madras Local Boards Act. The said decision is a binding authority in this case to this extent that the suit in

question must be held to be in respect of an act done or purporting to be done under the Village Panchayats Act.

The power of the panchayat to farm out the collection of fees is given u/s 124 of the Act, and it is only by virtue of the statutory power the

Panchayat can levy fees. If the suit in the present case is one for damages or compensation, it would certainly be governed by the provisions of

Section 107 of the Act, and the suit must be filed within six months of the accrual of the cause of action. But the claim, as recognized by the trial

Court, is one for refund of moneys paid under an agreement, which has been found to be void. The action is similar to actions for recovery of taxes

illegally levied or realized. It may be pointed out that in the referring judgment in Panchayat Board Thiruvothiyur v. Western India Matches

Company ILR (1939) Mad. 566 (F.B.) at page 573 it is observed as follows:

Prima facie it seems to us clear that an action for the recovery of house-tax alleged to have been illegally levied by a Local Board is a suit in

respect of an act done or purporting to be done in execution of the Local Boards Act.

And the question that was referred to the Full Bench was whether Section 225 covered suits for compensation and for damages. This suit is taken

out of the ambit of Section 107 not on the ground that it does not relate to an act done or purporting to be done in execution or intended execution

of the Act but for the reason it is not a suit for compensation or for damages. In Syed Ameer Sahib v. Venkatarama (1892) ILR Mad. 296 one of

the cases followed in Appu L. Rm. Lakshmanan Chetti (died) and Another Vs. The Union Board of Devakottai, and referred to with approval by

Full Bench in Panchayat Board Thiruvothiyur v. Western India Matches Company ILR (1939) Mad. 566 (F.B.), the section is stated to apply only

to suits for compensation claimed for wrongful acts committed under colour of the Act. That was a case u/s 156 of the Local Boards Act (V of

1884). Section 65 of the Contracts Act provides:

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.

Referring to the use of the word compensation their Lordships of the Judicial Committee in Covindram Seksarin v. Edward Rodbone ILR

(1947) Bom. 860, 869 (P.C.) agreed with the following comment of Stone C.J. upon the section:

Compensation for an advantage may appear to be a contradiction in terms, since compensation connotes a measure of loss or damage and not the

value of an advantage. It should be noted that in Section 56 the expression used is ''compensation for any loss'' and that u/s 64 the party rescinding

the contract is to restore any ''benefit''. u/s 65 the alternatives are to restore any advantage ''or to make compensation for it do the person from

whom he received it''. This must mean valuing or qualifying in ''money the advantage retained, if retained it be''.

It seems to me that on this interpretation of the word compensation in Section 65, even a claim for compensation u/s 65 of the Contract Act

would be out of the scope of Section 107 of the Panchayats Act. But it is not necessary to decide the same in the present case, as the Plaintiff has

limited his claim to recovery of the money paid. The advantage sought to be restored being money, there is no question of valuing this money''s

advantage. It follows, therefore, that the Plaintiff''s claim as now sought to be sustained is outside the scope of Section 107 of the Madras Village

Panchayats Act, and the suit is, therefore, not barred by limitation.

The result is the Second Appeal succeeds ; the decrees of both the Courts below are set aside, and the suit is remanded to the trial Court for

disposal in the light of the observations contained herein, giving leave to the parties to amend their pleadings. I may also make it clear that the

Plaintiff not having appealed from the decree of the trial Court he cannot get anything more than what was originally decreed. In the circumstances

of the case, the parties will bear their respective costs in this Court and in the lower appellate Court. The costs of the trial would be provided for

by the trial Court at the final disposal of the suit. The Court-fee paid on the memorandum of second appeal will be refunded. Leave granted.