Budhulal vs Deccan Banking Company Ltd.

Jaganmohan Reddy, J.—The facts in so far as they are relevant for the purposes of this reference are that the respondent, the Deccan Banking Co., Ltd., filed a suit on 13th Amardad, 1353F., for Rs. 1,275/- in the Small Causes Court, Hyderabad on a promissory note executed in its favour by the appellants Buddulal and Lakshman Singh on 13th Meher, 1350F., for Rs. 1,000/- payable with interest at the rate of Rs. 1-4-0 per cent, per month. The defendants in their written statements, while admitting the execution of the promissory note, set up a plea of discharge and raised objections regarding maintainability of the suit & the payment of consideration at different times. They further contended that inasmuch as the promissory note was payable to a bearer, it contravened S. 15, Hyderabad Paper Currency Act; as such the plaintiff could not recover the amount thereon under S. 15 of the said Act.

The Small Causes Judge held that the Chairman of the plaintiff-company was properly appointed and was authorised to file the suit. With respect to the only other point which was pressed, viz., that the money could not be recovered on the promissory note which became void under the provisions of the Hyderabad Paper Currency Act, he held that though the promissory note was invalid under S. 15, Paper Currency Act, the money was payable under S. 66 Hyderabad Contract Act (corresponding to S. 65, of the Indian Act) and under S. 36, Specific Relief Act. He further held that each party at the time when it entered into the transaction and executed the promissory note considered the agreement to be legal and even after the suit was filed the defendants did not deny this fact. Under these circumstances, he gave a decree in favour of the plaintiff.

As against this judgment a revision was filed in the High Court. The hearing was adjourned and the revision kept pending till the disposal of the case of -- "Imam Saheb v. Gundappa'', Case No. 12-A/5 of 1355F, D/- 26th Bahman 1359F (A), which was referred to a Full Bench and in which the same question was involved as the one which fell for determination in this case, viz., whether the money paid under a promissory note payable to bearer could be recovered. Two of the Judges in -- ''Imam Saheb v. Gundappa'', (A), held that though the agreement may be void under S. 15, Hyderabad Paper Currency Act, S. 66 was applicable in view of the decision in -- ''Moolchand v. Mir Raisuddin Hasan'', 40 Dec LR 25 (FB) (B), and the money was payable thereunder.

The third Judge was of the view that the decision in '' 40 Dec LR 25 (FB) (B)'', was based upon a minority opinion of the Judicial Committee in -- ''Md. Sherfuddin v. Md. Azizuddin'', 27 Dec LR 447 (C), and that even that minority opinion did not take into consideration the full significance and import of the terms ''benefit'' and ''advantage'' used respectively in Ss. 65 and 66, Hyderabad Contract Act (corresponding to Ss. 64 and 65, Indian Contract Act). He, therefore, considered the matter sufficiently important to be referred to a larger bench and directed the file to be placed before the Chief Justice for the constitution of such a Bench. The then Chief Justice, however, took the view that having regard to S. 10, Hyderabad High Court Act, the opinion of the majority will prevail in the case and he consequently directed that effect be given to the majority decision.

When the revision out of which this reference arises came up for hearing the learned advocate for the petitioner contended that the decision in -- ''Imam Saheb v. Gundappa (A)'' had no binding force in view of sub-s. (2) of S. 10 of the High Court Act which empowered every Judge of a Full Bench in cases involving important questions of custom, usage or law to refer the matter to a larger Bench and the Chief Justice on such reference was bound to constitute a larger Bench and refer the matter to it for decision. Having regard to the importance of the question, the Division Bench referred the following three questions to the Full Bench which in turn referred them to a Fuller Bench:

Whether the decision in -- ''Imam Saheb v. Gudappa'', decided on 26th Bahman 1359 F., in case No. 12-A/5/1355 F. (A) can be regarded as an operative and binding judgment in the face of the order of reference by one of the Judges to a Fuller Bench under S. 10 (2) of the High Court Act?

(a) If question No. 1 is answered in the negative, then where the contract becomes void on account of the provisions of S. 15, Paper Currency Act having been violated whether the promisee can recover the amount due from the promissor under S. 66, Hyderabad Contract Act? (b) Whether the Small Causes Court would be competent to pass a decree in such cases?

After hearing the arguments of the learned advocate in this case, we felt that question 2(a) as framed postulates a contract becoming void on account of the provisions of S. 15, Paper Currency Act having been violated, while in fact the question that actually falls for determination is whether the agreement is void or discovered to be void. In view of this, we have reframed question 2(a) as under--

2(a) (i) Is the agreement void by reason of the prohibition contained in S. 15, Hyderabad Paper Currency Act?

(ii) If so, can the agreement be said to have been discovered to be void within the meaning of S. 66, Hyderabad Contract Act and is the money recoverable thereunder?

(iii) If not, can the money be recovered under any other principle of law?

The first question which has to be determined is whether the judgment in -- ''Imam Saheb v. Gundappa (A)'' has a binding force in view of the provisions of S. 10 of the High Court Act.

Before considering the effect of S. 10 it would be necessary to notice the provisions of Ss. 7, 8 and 9 briefly in order to ascertain the exact scope and nature of the procedure to be adopted in referring cases to a Full Bench. Section 7 provides that whenever any important question of law, custom and usage having a general application arises in connection with a case the Division Bench may with an expression of its opinion thereon refer such question or case to the Full Bench for disposal. Section 8 lays down the procedure in cases of disagreement between Judges of the Appellate Bench, which provides that where a difference of opinion arises between Judges of an Appellate Bench, each Judge shall record his own opinion with the reasons therefor and the matter shall be reported for disposal to a third Judge who may be nominated by the Chief Justice for that purpose; and such Judge shall decide the case in accordance with the opinion with which he might agree. In case the third Judge differs from either of the opinions the case shall be heard and determined by the Full Bench.

Section 9 lays down that a Full Bench shall try,--

(a) all questions and cases referred to it under Sections 7 and 8;

(b) references and cases which under any other law are declared to be triable by a Full Bench; and

(c) applications for transfer of cases and discharge on bail and references, revisions as well as all miscellaneous applications and proceedings connected with cases mentioned in clauses (a) and (b).

From the aforesaid provisions of the High Court Act, it is evident that in important questions of law or custom and usage having a general application, a Division Bench may refer either the entire case or the important question or questions arising therefrom to a Full Bench for disposal. Similarly where on a disagreement the case is referred to a third Judge and the third Judge differs from the opinion of the other two, the case has to be heard and determined by a Full Bench. A Full Bench has been defined in S. 10 of the Charter of the High Court (Manshoor Khusravi) as one which is constituted of three Judges for purposes of hearing and disposal of a case. The next provision to be considered is S. 10 which lays down the procedure in cases of disagreement among Judges of the Full Bench and a reference by it to a larger Bench of more than three Judges.

A transliteration of the Urdu version of S. 10 with its English rendering is given below:

Sec. 10 (1) :

Moquaddamath Jalasay Kamilaka ba-ittefaq ya ba, ghalba are faisla hoga, lekin agar jalsay kamilakay harse arkan may aysa ekhtelafey ara ho ke ghalba na ho sake, the har rukun apni rai ka izhar my vahjoo tahreeran karega aur ghalba ustaraf samjah jayaga jistarap senior rukun ho

Sec. 10 (2) :

Agar moquaddama men koyi aysa aham masla rasam vo rivaj ya khanoon ka paida ho jiska asar aam bo the bavajood (sic) (1) dafai baza bar rukun jalasa-e-kamila majaz hoga kay maslay thasfiya thalab ko moyyan karkey ba izbat rai mir majlis ko ittela dein aur mir majlis ua ittela per then say zayad arkan ka ayasa jalsa muruttab karaingay jo masaial muffaveza jalsa-e-kamila thasfia karaiga aur yeh thasfia jalsey thafviz kuninda men bagharz laameel vapaa kiya jajaga.

Cases in Full Bench shall be decided by unanimous or by majority opinions but where there is such a disagreement among the three Judges as not to result in a majority opinion then each Judge shall record his opinion separately with the reason therefor and the majority opinion shall be deemed to be on that side on which the senior Judge is.

If any such important question of custom, or usage or law arising in a case is of general application, then notwithstanding sub-section (1) of this section, each Judge constituting the Full Bench shall be competent to formulate the question to be determined along with his opinion thereon and intimate the Chief Justice and the Chief Justice shall, on such intimation being received, constitute a Bench of more than three Judges for determining the questions referred by the Full Bench and this decision shall be forwarded to the Bench which referred the case for being given effect to.

Sub-section (1) of S. 10 lays down a general rule that decisions of a Full Bench shall be either unanimous or prevail by majority and where there is no majority, that is, where each one of three Judges gives expression to different opinions and a majority does not exist, then the sub-section notionally declares that the opinion of the senior Judge shall be deemed to be the majority opinion. Sub-section (2) lays down the procedure to be followed by the Pull Bench for referring to a larger Bench in certain circumstances the exact scope of which has given rise to this controversy. It is contended by the learned Advocate for the petitioner that the legislature by substituting the words ''notwithstanding sub-s. (1) each Judge shall be competent'', clearly indicated an intention to give the right to every Judge individually to refer a case to a larger bench if he is of the opinion that the question raises a matter of general importance relating to custom, usage or law.

Inasmuch as the plaintiff-opposite party was not represented before us, we allowed Sarvashri Vinayak Rao Vaidya, Bhimsena Chari and Deshmukh, Advocates who are appearing in other cases where a similar question has been raised to appear as ''amici curiae''. The first two learned Advocates supported the case put forward by the revision-petitioner. Shri Deshmukh argued against it and contended that the words "each Judge shall be competent" read with the words "the question referred by the Full Bench" towards the end of the sub-section imply that where a majority of the Judges of the Full Bench wish to refer a question or questions to a larger bench, every Judge of the Full Bench should of necessity specify the question to be referred with reasons therefor and send intimation thereof to the Chief Justice.

He further submits that even after the amendment, by the use of the plural ''Ithaladein'' in relation to intimation being given to the Chief Justice, the words ''each Judge'' could only be interpreted to mean "all the Judges" and similarly by the use of the plural in relation to ''questions'' which are referred to the larger Bench by the Full Bench for determination it is meant to convey that each of the Judges of the Full Bench has to specify and refer a question which has been collectively termed as ''questions'' referred by the Full Bench.

In our view the use of the plurals in the said sub-section has no legal significance apart from being a common colloquialism signifying veneration or respect in relation to some high authority. In this sense only the plural ''karaingay'' with reference to the action to be taken by the Chief Justice constituting a larger Bench has been used instead of the word ''karaiga''.

It may be observed that sub-s. (2) as it originally stood before its amendment in 1344 F clearly laid down that wherever any important question of usage or custom or law arises in a case which has a general application, the Judges of the Full Bench shall be competent, after formulating the question to be determined with their opinion thereon, to give intimation thereof to the Chief Justice and the Chief Justice shall on such intimation constitute a Bench of more than three Judges etc. This provision created no difficulty as it clearly provided for a reference being made by the Judges of the Full Bench which would mean that a reference could be made by all the Judges unanimously or by majority. The section was amended so as to substitute in place of the words "the Judges of the Full Bench" the words "each Judge of the Full Bench". The rest of the old section was left intact.

The change is significant and having regard to it, it would be impossible to accept the contention of the learned advocate for the respondent that because the provisions of sub-s. (2) before its amendment did not permit a reference to a Fuller Bench unless there was unanimity, the legislature made the aforesaid amendment in order to provide for the contingency when the majority of the Judges of the Full Bench wanted to make a reference to a larger Bench by requiring that all the three Judges of the Full Bench must formulate and refer the question individually. This contention in our view, if accepted, would nullify the very object of the amendment besides making it otiose. There was nothing in the provisions of the Act before the amendment which placed a restriction on any of the Judges of a Pull Bench to make an individual reference and there was no necessity for the legislature to insist on each of the Judges to make a reference.

It is difficult to conceive that by the use of the words ''each Judge'', the legislature contemplated ''all Judges''. In the first place the use of the word ''shall be competent'' in singular (majaz hoga) makes each Judge constituting the Full Bench individually competent to refer a case irrespective of the fact whether others do so or not. In the second place, since sub-s. (1) of S. 10 provides that the decision of the Full Bench may be either unanimous or by a majority a decision to refer any question or questions to a larger Bench would be a matter falling under the provisions of this sub-section and there would be no necessity for the legislature to amend sub-s. (2) of S. 10 to achieve an object which had already been provided for.

The amendment of sub-s. (2) clearly gives a right to each Judge of the Full Bench, notwithstanding anything contained in sub-s. (1) relating to a unanimous or majority decision of the Full Bench, to refer any question of general importance relating to usage, custom or law to a larger Bench. The non-obstante clause of the amendment, in our view, makes it clear beyond reasonable doubt that the intention of the legislature was to make an exception to the general rule that the decisions of the Full Bench were to be unanimous or by a majority. It is quite possible, indeed it is likely, that the legislature desired that in matters of general importance specified in sub-s. (2) there should be at least the opinion of three Judges in favour of a particular view and that is why a right was conferred on each of the Judges constituting a Full Bench to determine whether or not the question was sufficiently important to merit a decision by a Fuller Bench in order that it may be possible to have at least more than two opinions in support of one or the other of the contending view points.

If this was not so, the effect would have been to decide by a majority any question of great importance where there is no unanimity which would be tantamount to an unanimous decision of a Bench. In order to give greater efficacy and weight to judgments on questions of importance the legislature conferred a right on each Judge of the Full Bench to refer to a larger Bench any question which in his opinion involves an important question of general application relating to custom, usage or law. On the language of sub-section (2) and the nature of the amendment which was made in 1344 F., the conclusion at which we have arrived appears to be irresistible and there is nothing irrational or unreasonable in this construction being placed on the legislative intent of the amendment. The provision in the latter part of sub-s. (2) of S. 10 relating to the determination by the larger Bench of the questions referred to it by the Full Bench should be construed as the question or questions referred by even a single Judge of a Full Bench which question or questions will be deemed to have been referred by the Full Bench notwithstanding the fact that the other two Judges did not specifically refer any question to it.

Mr. Deshmukh put forward another argument based on S. 98, Civil P. C. He pointed out that the Civil P. C. was applied to Hyderabad. State on 1-4-1951 by the Amendment Act (No. 1 of 1951) and urged that the provisions of S. 98 of the said Act must override S. 10(2) of the High Court Act. The argument is scarcely relevant because the case of -- ''Imam Saheb v. Gundappa (A)'' was decided before the application of the Indian CPC to Hyderabad when there could be no possible doubt of the applicability of the provisions of sub-section (2) of S. 10, Hyderabad High Court Act. We think it is, therefore not necessary to deal with the arguments addressed to us on this aspect of the case.

We now come to question 2(a) (i), viz., Is the agreement void by reason of the prohibition contained in S. 15, Hyderabad Paper Currency Act? Section 15 (corresponding to S. 31, Reserve Bank of India Act, 2 of 1934) reads thus:

No person in H. E. H. the Nizam''s Dominions shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, lend or take up any sum or sums of money on any such bill of exchange, hundi, promissory note or engagement.

Provided that cheques or hundies payable to bearer on demand or otherwise, may be drawn on bankers, shroffs or agents by their customers or constituents in respect of sums of money held in deposit by, or placed under the control of, such bankers, shroffs or agents to the credit and disposal of the persons drawing such cheques or hundis.

Section 16, Hyderabad Currency Act (corresponding to S. 32, Reserve Bank of India Act) declares that the making of an instrument in contravention of the provisions of S. 15 is an offence punishable with a fine equal to the amount of the bill, hundi, note or engagement in respect whereof the offence is committed.

The promissory note dated 13th Meher, 1320 P., with which we are concerned may be translated thus:

We Buddulal, son of Lalchand, etc. Takur Lakshman Singh son of Takur Bansi Singh etc., Wazir Ali son of Mahboob Ali etc., execute this promissory note in favour of Deccan Banking Co., Ltd., Hyderabad (Dn.), and agree as follows:

that we have obtained in cash from the Deccan Banking Co., in accordance with S. 31 of the Articles of Association, Rs. 1,000/- O. S. (Rupees one thousand Osmania Sicca) half of which is Rs. 500/- O. S. (Rupees five hundred Osmania Sicca) at Rs. 1-4-0 per month per hundred. We, the promissors will pay jointly or severally to the bearer of this promissory note or on demand by the said company. This promissory note has been written so that there may be a document and it may be used when necessary.

The learned advocate for the respondent contends firstly that though S. 15 prohibits payment to bearer on demand, the suit pronote is not only payable to bearer as distinguished from bearer on demand but is also made payable on demand to a named person and hence it does not come within the mischief of the section. In our view, this contention is not well-founded. When the section prohibits payment to bearer on demand, what it prohibits is a promissory note which in law will be payable to bearer on demand and this is what S. 17, Hyderabad Negotiable Instruments Act (corresponding to S. 19, Indian Negotiable Instruments Act) does when it raises a presumption that every promissory note or bill of exchange in which no time for payment is specified is payable on demand. The tenor of the suit promissory note is such that in our view it is payable to bearer on demand and is hit by the provisions of S. 15, Hyderabad Paper Currency Act. The mere fact that it is also made payable on demand to a specific person does not make any difference.

It has been decided in the case of -- H.V. Low and Co. Ltd. Vs. Sudhanna Kumar Chakravarti and Others, -- ''Hajee Syed Shah Pasant v. Batchu Bucchi Rajayya'', 35 Deccan LR 368 (FB) (E), -- ''In the matter of S. 25, Paper Currency Act (10 of 1923)'' In Re: Section 25, Paper Currency Act (10 of 1923) -- ''Jetha Parkha v. Ramachandra'', 16 Bom 689 at p. 696 (G), -- ''Chidambaram Chettiar v. Ayyasami Thevan'', AIR 1917 Mad 201 (H), that if promissory notes are payable to bearer simpliciter or to bearer on demand and alternatively to some specified persons they are hit by the provisions of the Paper Currency Act. The test for determining whether a promissory note is hit by the provisions of S. 15, Hyderabad Paper Currency Act is whether the suit promissory note is payable to any person who may be in possession thereof or to put it in another way will the bearer of the note without any endorsement obtain payment of the money due on the note. In -- ''Shaik Ismail v. Ezekiel'', AIR 1919 Low Bur 7 (1) (I), it was observed:

............it appears to us that the mischief which the section was intended to stop was the original making or issuing of promissory notes payable to bearer on demand, and if the Legislature had intended to prevent the endorsement of promissory notes so as to have this legal effect, they surely would have said so expressly.

In - Tittu Gopalachariar and Others Vs. Maiyappa Chetty and Others, , Sheshagiri Iyer J., observed with reference to S. 26, Indian Paper Currency Act at page 318:

..........The principle underlying that Section is that private persons should not be permitted to usurp the privileges of the Government. For they alone have the right to get a note negotiated by bare presentation.

In these circumstances there is no room for doubt that the suit promissory note is prohibited by S. 15 of the Paper Currency Act and is void in view of S. 24. Hyderabad Contract Act (Sec. 23, Indian Contract Act).

Once the suit promissory note is held to be void the next question that would arise is whether the money paid thereunder is recoverable. Generally speaking under the English law where both parties contracting on an equal footing are aware of the illegal nature of the contract whether it be on its face illegal or whether the common intention be to carry out the contract in an illegal manner neither party can recover anything paid thereunder, but if the plaintiff can recover without relying on any illegal contract he may do so provided the parties are not in pari delicto. Further, where the illegal purpose has not been carried out the law allows a locus penitentiae to the parties who demand return of the money before this happens; in other words, either party to an illegal contract may rescind it while it remains executory and may recover from the other party any money which he may have paid to him thereunder notwithstanding the fact that he has to prove the making of the illegal contract as a part of his case.

In -- In Re: Section 25, Paper Currency Act (10 of 1923) -- ''35 Deccan LR 368 (FB) (E)'' and other cases it was held that though a promissory note may contravene the provisions of the Paper Currency Act, the plaintiff can sue on the basis of an obligation whether antecedent to or arising simultaneously with the execution of the promissory note independently of the execution of the promissory note. But in this case the plaintiff has not sued on the original cause of action and the only point for determination is whether the plaintiff can ask for restitution on the ground that the void pronote can be said to be an agreement discovered to be void within the meaning of S. 65, Hyderabad Contract Act (corresponding to S. 65, Indian Contract Act).

The section lays down that:

When an agreement is discovered to be void or where 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 receives it.

As pointed out by the Privy Council in -- AIR 1922 403 (Privy Council) at pp. 404-405, the section deals with (a) agreements and (b) contracts. The distinction between them is apparent from S. 2; by clause (c) every promise and every set of promise forming the consideration for each other is an agreement, and by clause (h) an agreement enforceable by law is a contract. Section 65 deals with (at agreements enforceable by law and (b) with agreements not so enforceable. By cl. (g) an agreement not enforceable by law is said to be void. An agreement, therefore, discovered to be void is one discovered to be not enforceable by law and on the language of the section, would include an agreement that was void in that sense from its inception as distinct from a contract that becomes void.

Reliance is placed on behalf of the defendant-applicant on the observations of the eminent writers Pollock and Mullah in their treatise on Indian Contract and Specific Relief Acts, 7th Edn., pages 345 and 347 to the effect that S. 65, Indian Contract Act does not apply to agreements which are void under S. 24 by reason of an unlawful consideration or object and there being no other provision in the Act under which money paid for an unlawful purpose may be recovered back, an analogy of English law will be the best guide. The reasoning is that if the view of the Privy Council is right namely that ''agreements discovered to be void'' apply to all agreement which are ab initio void including agreements based on unlawful consideration, it follows that the person who has paid money or transferred property to another for an illegal purpose can recover it back from the transferee under this section even if the illegal purpose is carried into execution and both the transferor and transferee are in pari delicto.

In our opinion, the view of the learned authors is neither supported by any of the subsequent Privy Council decisions nor is it consistent with the natural meaning to be given to the provisions of S. 65. The section by using the words ''when an agreement is discovered to be void'' means nothing more nor less than when the plaintiff comes to know or finds out that the agreement is void. The word ''discovery'' would imply the pre-existence of something which is subsequently found out and it may be observed that S. 66, Hyderabad Contract Act makes the knowledge (Ilm) of the agreement being void as one of the pre-requisites for restitution and is used in the sense of an agreement being discovered to be void. If knowledge is an essential requisite even an agreement ab initio void can be discovered to be void subsequently. There may be cases where parties enter into an agreement honestly thinking that it is a perfectly legal agreement and where one of them sues the other or wants the other to act on it, it is then that he may discover it to be void. There is nothing specific in S. 65, Indian Contract Act or its corresponding section of the Hyderabad Contract Act to make it inapplicable to such cases.

A person who, however, gives money for an unlawful purpose knowing it to be so, or in such circumstances that knowledge of illegality or unlawfulness can as a finding of fact be imputed to him, the agreement under which the payment is made cannot on his part be said to be discovered to be void, The criticism that if the aforesaid view is right then a person who has paid money or transferred property to another for illegal purpose can recover it back from the transferee under this Section even if the illegal purpose is carried into execution, notwithstanding the fact that both the transferor and transferee are in pari delicto, in our view, overlooks the fact that the courts do not assist a person who comes with unclean hands. In such cases, the defendant possesses an advantage over the plaintiff -- in pari delicto potior est conditio defendentio.

Section 84, Indian Trust Act however has made an exception in a case

where the owner of property transfers it to another for illegal purpose and such purpose is not carried into execution or the transferor is not as guilty as the transferee or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law the transferee must hold the property for the benefit of the transferor.

This specific provision made by the legislature cannot be taken advantage of in derogation of the principle that S. 65, Contract Act, is inapplicable where the object of the agreement was illegal to the knowledge of both the parties at the time it was made. In such a case the agreement would be void ab initio and there would be no room for the subsequent discovery of that fact.

We have so far endeavoured to interpret S. 65 on the basis of its language and on universally accepted legal principles. The view that we take of it is also supported by authority. In -- AIR 1922 403 (Privy Council) the plaintiff''s claim to ownership of village properties was based on an instrument of a transfer executed on 2-1-1880, by the defendant Indar Bahadur Singh in favour of Rachpal Singh, the plaintiff''s deceased husband. The villages were part of two talukas in Oudh owned by Thakur Naipal Singh, whose name was entered in list II attached to the Oudh Estates Act 1 of 1869, as estates which, according to the custom of the family, ordinarily devolved upon a) single heir. Thakur Naipal Singh died childless on 28-10-1873, leaving him surviving his two widows. The plaintiff''s case was that in 1878 her husband, Rachpal Singh, advanced Rs. 20,000/- for this litigation and other expenses to Indar Singh, who was a poor man, and that in 1880 on a further advance of Rs. 5,000/-. Indar Singh executed the instrument of transfer on which this suit was founded. Both courts had held that the transfer was inoperative as on the date of the execution of the deed, Indar Singh had no interest capable of transfer but merely an expectancy.

Their Lordships concurred in the view that the agreement was manifestly void from its inception and it was void because its subject matter was incapable of being bound in the manner stipulated. On the materials on record, however, their Lordships inferred that there was a misapprehension as to the private rights of Indar Singh in the villages which he purported to sell by the instrument of 2-1-1880 and 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. At page 405 of the report Sir Lawrence Jenkins observed:

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 S. 65 of the Contract Act.

This case was again considered in -- AIR 1923 189 (Privy Council) which also involved a transfer of immovable property by the nearest reversionary heir, expectant upon the death of a widow in possession. Their Lordships distinguished the case of -- ''Harnath Kaur v. Indar Bahadur Singh'', (K), on the ground that in that case there were special circumstances wholly different from those in the case before them, circumstances which were proved in evidence and were sufficient for their Lordships to act upon and to enable them to say that the discovery in the case was later than the date of the contract itself. At page 191 of the report, Lord Sumner observed as under:

There has been no suggestion anywhere in the course of the present proceedings that any such facts occurred as could alter the view which must normally be taken of the meaning of the word ''discovery'' and of the time at which that discovery must be held to have occurred. Not only so, but it was by the deliberate act of the appellant himself, for considerations which at the time were very likely wise considerations, that he closed the door to any investigation of that issue at all.

Again in Abdullah Ashgar Ali v. Ganesh Das, AIR (20) 1933 PC 63 , Lord Russell of Killowen said at Page 66:

In the absence of special circumstances (and none exist here) the time at which an agreement is discovered to be void within the meaning of S. 65 is the date of agreement.

These three cases of the Privy Council make it clear that in the case of void contracts it is not an absolute rule of law that they can never be deemed to be agreements discovered to be void as suggested by the learned Advocate for the revision-petitioner. On the other hand they lay down the proposition that if facts and circumstances in the case prove that the parties discovered the illegality subsequently and not at the time of entering into the agreement, S. 65, Contract Act would become applicable.

In 1942 the Privy Council once more in the case of -- AIR 1943 29 (Privy Council) while considering a mortgage made by a judgment-debtor who suffered from incapacity imposed by para 11 of Sch. 3 Civil P. C. & hence void took into consideration the knowledge of the lender in ordering restitution under S. 65, Indian Contract Act. Sir George Rankin delivering the judgment of the Board after referring to the cases -- AIR 1922 403 (Privy Council) K AIR 1923 189 (Privy Council) Abdullah Ashgar Ali v. Ganesh Das, AIR (20) 1933 PC 63 and -- AIR 1940 204 (Privy Council) observed at page 33:

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 para 11 of Sch. 3 correctly to the particular facts of the execution proceedings and to the terms of the orders as recorded .......... On this view no question of limitation can arise under S. 65 since the circumstances giving rise to their right to rescind did not come to the plaintiff''s knowledge until after action was brought.

Both on principle, and on authority, thus, it would appear clear that a void agreement can be discovered to be void, if circumstances exist which would show that at the time of the agreement the parties or the party seeking relief did not know or could not have discovered it to be void, or that the parties were not pari delicto. The learned Advocate for the revision petitioner has cited the cases of - Dhanna Munda and Another Vs. Mt. Kosila Banian, - Hadibandhu Behera Vs. Gopal Sahu and Others, ; - Bava C. Gopalaswami Mudaliar Vs. The Annadhana Kattalai of Sri Tyagarajaswami temple by Trustee, Vaithilinga Pandarasannadhi and Another, -- ''Venkatasubbayya v. Attar Sheik Mastan'', AIR 1949 Mad 252 (S); -- ''Govind Singh v. Wali Mohammad'', AIR 1951 Hyd 44 (T); -- Jagdish Prosad v. Produce Exchange Corporation'', AIR 1946 Cal 245 (U); - Rudragowda Yeshvantgowda Vs. Gangowda Basagowda Patil, , and some other cases in support of his contention that S. 65, Contract Act does not cover a case of an agreement which is ab initio void and that a person entering into an agreement which is prohibited by a statute should be deemed to have knowledge of the illegality at the time he enters into the agreement. The facts and circumstances of all these cases indicate that the parties were in pari delicto.

The ''Patna case and 1949 Madras case'' were cases of benami transactions in contravention of the statutory provisions where the parties knew that they were entering into an illegal transaction. In the Madras case the parties were held to have deliberately entered into an agreement with full knowledge of the fact that it was an express contravention of the rules and restrictions imposed upon them. ''Jagdish Parshad''s case (U)'', is not a case of an agreement being void or discovered to be void but is one where the contract became void and is not really pertinent to this discussion. In Gowda''s case (V) the parties were in pari delicto having conspired to set up fictitious adoptions in order to defeat the claims of the other reversioners and though S. 65 was not made applicable in view of the facts of the case, it was nonetheless recognised that the said section could cover cases of agreements which are void ab initio or where the agreement was the result of some misapprehension.

No doubt Agarwal J., in Dhanna Munda and Another Vs. Mt. Kosila Banian, , had recourse to the presumption ignorentia juris non excusat in holding that S. 65 did not apply to cases which contravened the provisions of a Statute on the ground that the parties must be presumed to have known at the time they entered the contract that they were contravening the provision of a statute, but if we may say with respect, we find it difficult to appreciate the argument particularly when at page 512 in dealing with ''Harnath Kaur''s case (K)'', the learned Judge observed:

As I understand this decision their Lordships held that the contract was based on a mutual mistake of the parties as to the true nature of the rights of Indar Singh.

It may be observed that the mutual mistake pertained to a legal prohibition under the Hindu law of transferring an expectancy. In what way can such a case be said to be different to the case of a statutory prohibition, it is difficult to understand. Both are prohibitions under law which every one is presumed to know.

In '' AIR 1951 Hyd 44 (T)'', the money was sought to be recovered by an unlicensed money-lender which was resisted on the ground that the suit was not maintainable as the loan was advanced by a person who had no licence. How the question of the illegality of the promissory note executed by the defendant came to be considered is not evident. If as a result of a loan being advanced by an unlicensed money-lender, no suit could be filed under the Hyderabad Money Lenders Act, the question of the recovery of the amount advanced under S. 65, Contract Act hardly arose. Even so all that can be said is that in that case no special circumstances showing discovery at a later date were alleged or proved or considered. There remains one other case of this High Court to be considered, namely, that of ''40 Dec LB 25 (FB) (B)'', about which it was said that it was based on a minority judgment of the Hyderabad Judicial Committee in ''27 Dec LR 447 (C)'', and formed the basis of the reference to a larger Bench by the learned third Judge of the Full Bench in -- ''Imam Saheb v. Gundappa'', (A).

In that case the suit arose out of a business transaction entered into between the plaintiff, a Government servant, and the defendant and the question was whether any money could be recovered by the plaintiff who, contrary to the prohibition in the Public Servants Conduct Rules, entered into the suit transaction. The plaintiff in his reply to the objection of the defendant had stated that apart from his being a Government servant he was also a jagirdar and had entered into the business transaction through an agent. Upon these facts it was held that the Government Servants Conduct Rules prohibited a Government servant not only to transact business but also to transact business through an agent and since the rules prohibited him from entering into any business, the transaction though void, he could recover money due on the contract under S. 66, Hyderabad Contract Act.

The question whether '' 40 Dec LR 25 (B)'', is not binding because it is based on a minority judgment of the State Judicial Committee in ''27 Dec LR 447 (C)'', or whether a contract entered into by a Government servant in contravention of any of the provisions of the Government Servants Conduct Rules is void, is not relevant to this discussion and we wish to express no opinion. It will, however, be sufficient to point out that there was no discussion therein of the question as to when and in what circumstances can an agreement be discovered to be void or whether a void agreement can at all be said to be discovered to be void.

In our judgment where a contract is discovered to be void the promissor can in a suitable case be given the benefit of S. 66, Contract Act. It appears to us that inasmuch as the Small Causes Court has found as a fact, and it has not been challenged, that the parties to the suit at the time when they entered into the transaction and executed the pronote considered the agreement to be legal and even after the suit was filed the defendant did not deny this fact, the plaintiff can be given the benefit of S. 66, Hyderabad Contract Act as he can be deemed to have discovered the agreement to be void when the defendant raised it in his written statement. In this view of the matter question 2 (a) (iii) does not arise.

With respect to question 2 (b) whether the I Small Causes Court has jurisdiction to entertain ''the suit for recovery of money under S. 65, the learned Advocates of the parties did not address any argument. Under S. 6, Hyderabad Small Cause Courts Act, all money suits can be filed in a Small Causes Court and there can be no doubt that this is a money suit and well within the pecuniary limit of the powers enjoyed by the lower court.

Our answers to the reference of the Full Bench are as under:

Question 1: The decision in -- ''Imam Saheb v. Gundappa'', is not a binding precedent.

2 (a) (i) The agreement is void under S. 15, Paper Currency Act.

2 (a) (ii) The agreement can be said to have been discovered to be void and the money is recoverable under S. 66, Hyderabad Contract Act.

2 (a) (iii) Does not arise.

2 (b) The Small Causes Court is competent to entertain the suit.

Misra, C.J.:

I agree with the conclusions reached by my learned brothers Siadat Ali Khan and Jagan Mohan Reddy and have nothing to add.

Palnitkar, J.:

I have perused the judgments prepared by my learned brothers Siadat Ali Khan and Jagan Mohan Reddy JJ. I concur with their conclusions. I note that the question of the application of S. 98 Civil P. C., does not arise in this case.

Srinivasachari J.:

I am in agreement with the conclusions arrived at by my learned brothers Siadat Ali Khan and Jaganmohan Reddy and I concur with them.

Siadatali Khan J.:

I have had the advantage of perusing the judgment of my learned brother, Shri P. J. Reddy, J. I agree with it but would like to add a few lines of my own.

The circumstances in which this reference has come up before this Bench are as follows. The Deccan Banking Co., sued Buddhulal and others on a promissory note. The defendants admitted the execution of the note and stated that as it was made payable to bearer, it was void under S. 15, Hyderabad Paper Currency Act No. 2 of 1327F. The Small Causes Court, by judgment dated 21st Ardibehist 1355F. (corresponding to 26-3-1945 A. D.) held that the note was void, but that the amount for which it was made should be returned under S. 66, Hyderabad Contract Act. The defendants came up in revision, the hearing of which was, however, postponed till the decision in the Full Bench case ''(Case No. 12/A/5 of 1355F(Hyd) (A) )'', in which also the same question was awaiting decision, viz., whether the money paid under a promissory note made payable to bearer could be recovered. ''Imam Sahib''s case (A)'', was decided on 26th Bahman 1359F. two Judges holding that though the note was hit by S. 15. Paper Currency Act and was, therefore, void, yet the benefit derived from it should be returned.

In arriving at this conclusion the learned Judges approved of the decision in the Full Bench case of -- ''40 Deccan LR 25 (B). The third learned Judge took the view that there exists a distinction between benefit or advantage derived from a void contract and the consideration for the same and that as this was overlooked in the Moolchand case, the matter should, therefore, be decided by a higher Bench. Accordingly, acting under S. 10(2), Hyderabad High Court Act, 3 of 1337 F. he directed the file to be placed before the learned Chief Justice for constituting a higher Bench. The learned Chief Justice of the time, however, took the view that the reference by a single Judge of the Full Bench under S. 10 (2) was incompetent and that, therefore, the majority view should prevail. Imam Sahib''s case (A) was thus decided on 25-3-1359 F. The revision in this case, therefore, came up again for hearing on 4-4-52 and it was contended that the reference by the third learned Judge was fully competent and as the learned Chief Justice did not constitute a higher Bench, the decision in Imam Sahib case was not binding on the Division Bench. The Division Bench hearing the revision referred the question to a Full Bench and the latter referred it the same day to this Bench.

The following questions were framed:

Whether the decision in -- ''Imam Sahib v. Gundappa'', decided on 26th Bahman 1359 F. in case No. 12-A/5/1355 F. (Hyd) (A) can be regarded as an operative and binding judgment in the face of order of reference by one of the Judges to a Fuller Bench under S. 10(2) of the High Court Act?

(a) If question No. 1 is answered in the negative, then where the contract becomes void on account of the provisions of S. 15 of the Paper Currency Act having been violated whether the promisee can recover the amount due from the promisor under S. 66, Hyderabad Contract Act?

(b) Whether the Small Causes Court would be competent to pass a decree in such cases?

We will begin with the first question. The answer to it depends on the interpretation of S. 10(2) of the High Court Act (hereinafter referred to as the Act). Section 10 of the Act is as follows:

10(1) The Full Bench cases shall be decided in accordance with the opinion of all the Judges or of the majority of the Judges, but where there is such a difference of opinion among the three Judges of the Full Bench as not to result in a majority, then each Judge shall record his opinion and the reasons therefor and majority shall be deemed to be on that side on which the senior Judge may be.

(2) Where any important question of custom, usage or law of general application arises in a case, then notwithstanding sub-section (1) of this section, each Judge of the Full Bench will be competent to formulate the question requiring determination and intimate the Chief Justice with his opinion thereon, and on such intimation the Chief Justice shall constitute a Bench of more than three Judges for determination of the questions referred to the Full Bench; and this decision shall be forwarded to the Bench which referred them for compliance.

What is the true import of this section, especially sub-s. (2) which is now under consideration? The rules of interpretation are of course well known and do not require any elaborate statement here. Interpretation should primarily be grammatical and literal. Words should be even their ordinary meanings. The context in which they are used should also be kept in view. The statute as a whole should be considered, but extrinsic circumstances, like the history of the statute may not be resorted to, unless the true import is not evident from the statute itself Keeping these canons of interpretation in mind let us find out the true import of this section. A perusal of this section will show that sub-s. (1) envisages that the decision by a Full Bench may take one of three forms it will be either (a) a unanimous decision, or (b) a decision by majority, or (c) the opinion of the senior Judge is to prevail. Serials (a) and (b) are enacted in unequivocal and clear language but regarding serial (c) the words used are not equally clear.

As already stated, the words used are "where there is such a difference of opinion among the three Judges of the Full Bench as not to result in majority, majority shall be deemed to be on that side on which the senior Judge may be." The use of the word ''side'' indicates that the senior Judge will share the opinion of one or other of the two Judges. If he is so persuaded, there will be a, majority, but the sub-section expressly contemplates otherwise; and yet the word ''side'' is used. It is, therefore, clear that the phrase in which the word ''side'' is used is inartistically framed.

A reference to the history of legislation of this sub-section will show that before the amendment of 1344 F., it read as follows:

Where there is such a difference of opinion among the three Judges as not to result in majority, the case will be referred to five Judges and the decision will be by majority and if no majority can be obtained in this way then, the majority shall be deemed to be on that side on which the senior Judge will be.

Thus the position before the amendment was that if every" one of the three Judges of the Full Bench differed from every other Judge, the case was referred to five Judges; and if the difference of opinion still persisted to the extent that a majority of at least 3:2 was not available, either because two Judges each took two different views and one Judge held another divergent opinion, the majority was prescribed to be on the side which included in itself the senior Judge.

The use of the word ''side'' in this context was unobjectionable, but to leave it over after the amendment was not artistic. The reason for omitting reference to five Judges in this sub-section appears to be that the legislature considered that it was possible that like the three Judges of a Full Bench, all the five Judges may hold five different opinions and, therefore, there was no use in referring the case to them; the Gordian knot had to be cut to provide for a majority and it should be done by giving preference to the opinion of the senior Judge. It is evident, however, that to prescribe that where the three Judges of the Full Bench are divergent, the opinion of the senior Judge should prevail is not providing for actual majority. The majority can only be notional and fictitious and this is what the legislature has enacted. It may be noted in passing that this sub-section enacts also that where the three Judges of the Full Bench differ from each other, each should record his opinion: and a similar rule is enacted in S. 8 of the Act. viz., where there is a difference of opinion between the two Judges of a Division Bench each is required to record his opinion.

We pass on now to the interpretation of sub-s. (2) of S. 10. The raison decree of it is given in the very first line, and it is the existence of an important question of custom, usage or law. Where there is such a question, every Judge of the three Judges of the Full Bench is empowered to formulate it and intimate the Chief Justice to form a higher Bench for its determination. It was contended at the Bar that the words "each Judge" here do not mean "any Judge", but mean "every one" of the three Judges. Let us consider what is there to support this contention. There is in the first place the use of the verb in plural in the phrase intimate, that is ''dain'' instead of the singular ''dey''. The use of the plural verb would thus support the view that by ''each Judge'', ''every one'' of the three Judges is meant.

Then there is the provision in sub-s. (1) that the decision shall be by majority. If a single Judge out of three Judges is empowered to formulate the question it will evidently be setting at naught the majority of the two Judges who do not think the question to be of sufficient importance to formulate it for determination by a higher Bench. In addition there is the analogy of similar provisions regarding recording of individual opinion, in sub-s. (1) and S. 8, as is noted at the end of paragraph 2 above. This is about all that can be said in support of this contention. The question is whether it is correct. On careful consideration we think it is not; for we would have undoubtedly adopted it were it not for the non-obstante clause "notwithstanding sub-s. (1)" used in this sub-section. That gives the go-by to the rule of majority enunciated in sub-s. (l) and is clear indication that even a Single Judge may move for a higher Bench. There remains the use of the plural verb. This also would have been conclusive if the said non-obstante clause had not been enacted.

As already stated, the clause indicates clearly that notwithstanding the enunciation of the rule of decision by majority or the rule that the opinion of the senior Judge shall prevail, every Judge shall be competent to move for a higher Bench. No other meaning can be given to this clause. It cannot be said that it is limited to the existence of a question of general importance of the kind specified and the intention of the legislature is only that where such a question presents itself, a higher Bench should be formed. For, in that case, the clause would have been otiose and would not have been used. As it is used, one cannot ignore it and has to give some meaning to it and the only meaning that can be given to it is that which we have already specified, viz., that notwithstanding the rule enunciated in sub-s. (1) of the decision by majority or by the opinion of the senior Judge, every Judge may move for a higher Bench. The use of the plural verb can be explained also. Either it is used courteously or is due to an oversight.

The first alternative is supported by the fact that, just a line after a plural verb is used in regard to the Chief Justice also, where it is enacted that the Chief Justice will form a higher Bench. There the plural verb (karainge) is used instead of the singular verb (karaiga). The second alternative is supported by the fact that before amendment of 1344 F. the power to refer to a Higher Bench was with all the Judges of the Full Bench. The very fact that the amendment was made and instead of "all the Judges of the Full Bench" "each Judge" was inserted clearly indicates that each Judge may refer. In view of such clear expression of the intention of the legislature, the analogy of S. 10(1) or S. 8 regarding the recording of individual opinion by each Judge can hardly be regarded a safe one.

The above discussion will show that the legislature intended that decision of the Full Bench will either be in accordance with the opinion of all the Judges or of the majority of the Judges or of the opinion of the senior Judge and that where there is an important question of general application, it should be in accordance with the opinion of a higher and fuller Bench. A consideration of the remaining portion of sub-section (2) will bear out the last mentioned proposition; for it is enacted therein that the Fuller Bench of more than three Judges formed by the Chief Justice shall decide "the questions referred to the Full Bench" and "this decision shall be forwarded to the Bench which referred them for compliance". The use of the plural word "questions" appears significant. Even if a single important question of custom, usage or law is found in a case and becomes the occasion of setting in motion the machinery of this sub-section, the decision of the Fuller Bench is, by express formulation, of all "the questions" which were referred to the Full Bench. This is quite clear; for the word "muffawaza" means "Tufweez Shudah" (that which was referred): the word is a "muffool" (predicate) and, therefore, having regard to these grammatical factors, the only literal and grammatical meaning is "the questions referred to the Full Bench".

Thus the position comes to this that the Full Bench is to decide all the questions referred to the Full Bench. The questions to the Full Bench are referred by the Division Bench and the sub-section in its last lines provides that the decisions of the Fuller Bench should be sent back to it for compliance and carrying them into effect.

The above is our interpretation of S. 10. and, in our view, a single Judge is competent to move for a Fuller Bench in the circumstances specified in sub-s. (2); and the Chief Justice is also bound to constitute a higher Bench. This means that the decision in Imam Sahib''s case (A) is not a binding decision for failure to constitute a fuller Bench.

It was also contended at the Bar that as S. 98, Civil P. C. was made applicable to this State from 1-4-1951 by Act 1 of 1951, that section and not S. 10(2) of the Act shall regulate the procedure of Full Bench decisions. The procedure embodied in S. 98 does not envisage a reference by a single Judge as does S. 10(2). The latter is, therefore, inconsistent with the former and as the former is applied to this State subsequently it shall prevail. This means that as S. 98 contemplates decision by majority and provides that where there is no majority, the decree appealed from should be confirmed, this procedure alone should now hold the field. This is an interesting question and we would have thrashed it out fully, but it was neither fully argued, nor is it relevant, inasmuch as the order of reference and the decision in Imam Sahib''s case (A) was dated 26-12-1949 and was thus much prior to the application of the Civil P. C. to this State, only S. 10(2) could have applied to it. We, therefore, think that it is not necessary to deal with the argument addressed to us in this respect.

We now pass on to a consideration of question No. 2(a). In our opinion, this question may better be split into the following three parts:

(i) Is the agreement contained in the suit note void became of the prohibition mentioned in S. 15, Hyderabad Paper Currency Act?

(ii) If so, can the agreement be said to have been discovered void within the meaning of S. 66, Hyderabad Contract Act (S. 65, Indian Contract Act)?

(iii) If not, can the money be recovered under the said S. 66 or any other principle of law?

Taking serial (i) above first, it should be noted that S. 15, Hyderabad Paper Currency Act (corresponding to S. 31, Reserve Bank of India Act, No. 2 of 1934) prohibits, inter alia, the making of a promissory note which is "payable to bearer on demand". It should be noted that a promissory note is essentially a negotiable instrument: and the essence of negotiability is that a document should be freely transferable from hand to hand like cash. The Government has, however, enacted the Hyderabad Currency Act. The object of this enactment is to secure for the Government the monopoly for the issue and circulation of currency notes. And the enactment is contravened when the promissory note is made payable to ''bearer on demand''. Even if the note is made payable to bearer simpliciter, the weight of authority is on the side that it is objectionable and hit by the Section referred to of the Reserve Bank of India Act or the Hyderabad Paper Currency Act, as will be seen from the cases cited, 35 Deccan LR 368 (FB) (E Mohammad Qasim Vs. The Municipal Board and Another, H.V. Low and Co. Ltd. Vs. Sudhanna Kumar Chakravarti and Others, ; AIR 1951 Hyd 44 (T); AIR 1917 Mad 201 (FB) (H); 16 Bom 689 (G). Hence in our opinion, the promissory note under consideration is void as it contravenes S. 15, Hyderabad Paper Currency Act.

The question at serial (ii) is whether the agreement contained in the suit promissory note can be said to have been discovered void within the meaning of S. 66, Hyderabad Contract Act (corresponding to S. 65, Indian Contract Act). Section 65, Indian Contract Act reads as follows:

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.

This section enacts, inter alia, that where an agreement is discovered to be void, the advantage derived from it should be returned. We have thus to see when an agreement can be so discovered. The leading case on that subject is that of AIR 1922 403 (Privy Council) It is explained there that:

An agreement discovered to be void is one discovered to be not enforceable by law, and, on the language of the section, would include an agreement that was void in that sense from its inception.

The important thing to note here is that even an agreement which is void ab initio can be ''discovered'' to be void. Evidently, this means that the parties should not at the time of the agreement know it to void. If they know it so, then it will be a travesty of fact to hold that they discover it later on. Void contracts are either those whose object is unlawful (S. 23) or those which are made for an unlawful consideration (S. 24).

Hence, if the parties contract knowingly for an unlawful object or for an unlawful consideration, S. 65 would have no application. On the other hand, if there are materials on record to show that such an object or knowledge was absent at the time of the agreement, S. 65 would apply. On this test we have to find whether the parties to the suit note knew it to be void at the time of its execution. The trial court has held that they did not. We see no reason why we should differ, for the note is in the form of a long document; it is not made payable to the bearer on demand; and no time for payment is specified. Owing to this last circumstance the aid of S. 17, Hyderabad Negotiable Instruments Act has to be invoked for regarding it a note payable on demand. Having regard to all these circumstances we are inclined to hold that the essential knowledge was non-existent and, therefore, on the authority of Harnath Kuer''s case (K) the benefit of S. 65 can be given.

It was, however, contended that Harnath Kuer''s case (K) has not invariably been followed. Reliance was placed on a number of cases cited, AIR 1923 189 (Privy Council) -- AIR 1932 89 (Privy Council) - AIR 1943 29 (Privy Council) -- AIR 1948 56 (Privy Council) -- ''Margaret Linz v. Electric Wire Co. of Palestine Ltd. AIR 1949 PC 51 (Y); -- ''Ledu v. Hiralal Bose'', AIR 1916 Cal 266 (Z) Hadibandhu Behera Vs. Gopal Sahu and Others, ; Dhanna Munda and Another Vs. Mt. Kosila Banian, We have examined them. All of them turn on their facts. In AIR 1923 189 (Privy Council) the Privy Council held that the appellants knew the transaction to be void when they entered into it and as such there were no circumstances which indicated that they discovered it to be void at a subsequent date. In AIR 1932 89 (Privy Council) there was no question of discovering a contract to be void. A deed had been obtained by fraud and undue influence and their Lordships of the Privy Council set it aside and ordered restitution on the ground that as the voidable contract was avoided, it could be deemed "to have become void" within the meaning of S. 65; and that apart from this, the doctrine of RESTITUTIO IN INTEGRUM also applied.

AIR 1943 29 (Privy Council) was similarly a case in which a contract had become void for failure'' of consideration. Certain lands were under the Collector''s attachment and were mortgaged without his permission. The mortgage was therefore, not enforceable, but the covenant to pay was not void. Still, the mortgagee who had agreed to make a loan upon security and had paid the money was not obliged to continue the loan as an unsecured advance. The bottom had fallen out of his contract and he avoided it and so brought himself within the terms of S. 65 and within the principle of restitution. AIR 1948 56 (Privy Council) was a similar case. There a contract for sale of machinery had become void after part-performance. Person receiving advantage was held bound to restore it. This again was a case in which a contract had become void, as distinct from a case in which it was discovered void as was the case in Harnath Kuar (K).

AIR 1949 PC 51 (Y) was again a similar case Ultra vires shares were issued. The share-holders were held entitled to get their money back for failure of consideration. Turning to the Indian cases cited, in AIR 1916 Cal 266 (Z), the agreement was held to be against public policy and, therefore, void. The agreement was with a Nazir of a court and was to the effect that if the Nazir would secure appointment of the son of the promisor as a peon in two years, he would be paid Rs. 150; and Rs. 100 were already paid. Restitution was refused as knowledge was presumed. In Hadibandhu Behera Vs. Gopal Sahu and Others, , an excise licence was transferred without the permission of the Collector. Under the Excise Act such a transfer was an offence and it was, therefore, void. Knowledge was found and S. 65 was not applied. AIR 1949 Mad 252 (S) was also an excise case. It was held that though S. 65 is applicable to contracts which are void ab initio, yet it cannot apply to forbidden contracts.

In Dhanna Munda and Another Vs. Mt. Kosila Banian, , it was observed that:

The words of S. 65 can only be applied in such cases as that of an agreement which is subsequently found to be void on account of some latent defect or of circumstances unknown at the date of agreement or of an agreement which is afterwards made void by circumstances which supervene. Harnath Kuer was clearly not a case in which both parties were aware of the illegality of the contract at the time of its inception.

This appears if we may say so with respect to be a correct reading of Harnath Kuer''s case (K), There is no use in pursuing the rest of the cases cited. The quotation just given correctly sums up the situation. Hence it is difficult to agree with the contention that Harnath Kuer''s case (K) has been distinguished or not invariably followed or that its authority has been weakened in any way. Of the four Privy Council cases decided after Harnath Kuer (K), the question whether a contract was discovered to be void came up only in one, and that case can by no stretch of imagination be regarded as deciding anything which tended to weaken the authority of Harnath Kuer''s case (K). Similarly, the Indian cases also follow it, and where they do not order restitution, it is because the parties had knowingly entered into an unlawful contract.

It should, however, be noted that though S. 65 does not apply to void contracts made knowingly and no restitution is ordered, yet in the matter of restitution a distinction is taken between an executory and an executed contract. Where a void or forbidden contract is entered into knowingly and it is executed, no restitution is ordered but it is ordered when the contract is still executory. This is provided in S. 84, Indian Trusts Act, 1882 which runs as follows:

Where the owner of property transfers it to another for an illegal purpose, and such purpose is not carried into execution or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor.

This embodies the English rule in this regard which is stated as follows:

Money paid in consideration of an executory contract or purpose which is illegal may be recovered back upon repudiation of the transaction, as upon a failure of consideration. But if the illegal purpose or any material part of it has been performed, the money paid cannot be recovered back, for the parties are then equally in fault, and IN PARI DELICTO MELLOR EST CONDITIO POSSIDENTIS.

The legal position, therefore, is that though S. 65 will not apply and no restitution will be ordered if the parties enter into a void (i.e., forbidden or illegal) contract knowingly, yet if the contract is still executory, restitution may be ordered. In the suit promissory note, however, the contract is not executory as Rs. 1000/- was already paid and hence restitution u/s. 84 or the English principle mentioned above cannot be ordered. And this disposes of serial (iii) of question 2(a). Restitution is to be ordered here, as the contract was discovered to be void, and was not void to the knowledge of the parties; and not because it was to the knowledge of parties a void contract and was still executory.

The subject of void and illegal contracts is a vast one. Briefly, agreements enforceable by law are contracts and agreements not enforceable by law are void. All illegal agreements are void. Illegal agreements are those agreements whose object is forbidden and discouraged by law. If the agreement is indivisible, illegality affects the whole of it. On the other hand, where the agreement is divisible, it affects only the illegal part. If the object of agreement is illegal, it is void irrespective of the fact whether the parties know it or not. But the intention of the parties may have to be considered in some cases, e.g., where the agreement is still executory or where the agreement though illegal, yet is capable of being performed in a legal manner also and may in fact be so performed. The effect of illegality on the validity of contracts varies with the circumstances. It may affect the whole or part of the contract; one of the parties may be ignorant of the illegal object or both may be innocent of an illegal intention.

As a rule, no action can be brought on an illegal agreement. The rule is clear that a party to such a contract cannot come into a court of law and ask to have his illegal object carried out nor can he set up a case in which he must necessarily disclose an illegal transaction as the ground-work of his claim; and this rule holds although neither party had any intention of breaking the law. It is expressed in the maxim IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS. One exception to this maxim is the doctrine of RESTITUTIO IN INTEGRUM embodied in S. 84, Indian Trusts Act. It is an equitable principle. In Common Law a similar principle was acted under the rubric Quasi contracts. It appears that had it not been for the historical development, the subject perhaps would have been treated under equitable principle and particularly under the doctrine of trusts.

We pass on to question 2(b) regarding the competency of the Small Causes Court. This is a money suit for about Rs. 1300/- and there cannot be any doubt about the competency of the Small Causes Court.

The answers to the questions referred to us should, therefore, be:

Q. 1: The decision in Imam Saheb v. Gundappa (A) is not a binding precedent.

Q. 2(a)(i): The agreement contained in the suit promissory note is void under S. 15, Hyderabad Paper Currency Act.

Q. 2(a) (ii): Even if the pro-note is deemed to be void, the agreement can be said to have been discovered to be void and the money is recoverable under S. 66, Hyderabad Contract Act.

Q. 2(a) (iii): Does not arise.

Q. 2(b): The Small Cause Court is competent to entertain the suit.