Kidwai, J.:— The Municipal Board of Gonda owns some shops and a compound collectively designated the Sabzimandi in the City of Gonda. By resolution No. 7(1) dated 1 8-1940, it agreed to grant undsr certain conditions a contract to Bachchu, alias Nabi Bux, for the realisation of the Municipal dues leviable in this mandi from 1-8-??? to 31-3-1942 in consideration of a payment of Rs. 1000 upto 31-3-1941, & another sum of Rs. 1000 for the ensuing year.
2. It is agreed that the contract was never reduced to writing nor was it signed as required by Section 97 of the Municipalities Act, but Bachchu was placed in possession of the Sabzimandi & began making his realisations. He also paid up the sum of Rs. 1000 for the period ending on 31-3-1941, but failed to pay the renaming Rs. 1000, Consequently, on 3-6-1942, the Municipal Board of Gonda instituted Suit No. 119 of 1942 in the Court of the Munsif, Gonda, for recovery of Rs. 1000.
3. The deft, raised a large number of pleas including a plea to the effect, that, as the contract could only be made through a written agreement & there was no such in existence, the suit based upon an agreement did not lie.
4. In its replication the Municipal Board repudiated the pleas raised in defence & relied upon the doctrine of part performance as entitling it to sue on the basis of the contract.
5. Issues were framed on the various points raised in defence & the learned Munsif upheld the plea that the contract, not having been executed in the manner required by Section 97 of the U.P Municipalities Act, was void & could not form the basis of the suit. Although, therefore, he found the other pleas urged by the deft, against him he dismissed the suit.
6. The pltf. appealed & the appellate Court relying upon the Full Bench decision of the Chief Court of Avadh in Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, dismissed the appeal. The pltf. came up in second appeal & his appeal is numbered as Second civil Appeal No. 286 of 1943, & because there were a number of decisions of other High Courts, including the Allahabad High Court, which conflicted with the decision in Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, the appeal was referred to a Full Bench of three Judges & later to the present Full Bench.
7. The Municipal Board of Gonda had also sanctioned by its resolution No. 218 of 28-3-1940, the grant to Bahraichi of a contract for the realisation of Municipal dues payable in respect of the use by itinerant vendors of the footpath between the police office & the civil Courts at Gonda for three years in consideration of a payment of Rs. 175 annually. The contractor was placed in possession & he made various pay men is but a sum of Rs. 211 remained unpaid & Suit No. 96 of 1943 was filed in the Court of the Munaif, Gonda, on the Small Cause Court side for its recovery.
8. In respect of this agreement also, the provisions of Section 97 of the U.P Municipalities Act, were not complied with & a plea of the invalidity of the contract on that ground having been taken by the deft, the learned Munsif upheld the plea & dismissed the suit. An application under Section 25 of the Small Cause Courts Act, was filed & is numbered 35 of 1943. In view of some conflict of decisions which has been referred to in respect of. Second civil Appeal No. 256 of 1943, this application also has been placed before the Full Bench for disposal.
9. The Municipal Board of Gonda is also in charge of nazul lands within municipal limits & it sanctioned by resolution No. 528 of 4-2-1939, the grant of grazing rights in some of this land to Bahraichi for a period of five years in consideration of a payment of Rs. 68 annually. Only Rs. 48 were paid & on 22-1-1913, the Deputy Commissioner of Gonda, on behalf of the State Govt. instituted Small cause court Suit. No. 45 of 1943 for the recovery of Rs. 161-12-0 principal & interest in respect of the grazing dues in the Court of the Munsif, Gonda, on the Small Cause Court side. In this case, it was pleaded that there was no contract at all: that in any case, the contract had not been reduced to writing as required by law: that the Small Cause Court had no jurisdiction: and that the suit was barred by time. Only the preliminary issues were framed in the suit & the learned Munsif held on the authority of Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, that, the lease not being in writing it was invalid & that in any case the requirements of Section 107 of the Transfer of Property Act not having been complied with, the suit must be dismissed. This decision has been challenged in S. 25 Application No. 42 of 1943, which has been referred to a Full Bench.
10. Two other appeals, Second civil Appeals Nos. 297 & 298 of 1944, in which the same question arose for decision, were also referred to a Full Bench but they were subsequently dismissed for want of prosecution.
11. The principal questions which arise for determination are as to the effect of Section 97 of the U.P Municipalities Act, & as to whether Section 65 of the Contract Act, has any application to the case of a contract which fails for non-compliance with the provisions of Section 97 of the Municipalities Act.
12. In Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, a Full Bench of three judges of the Chief Court of Avadh held that a contract which does not comply with the requirements of Sub-ss. (1) & (2) of S. 7 is void & that in that event, neither party to the contract can get the benefit of Section 65 of the Contract Act. This decision is at variance with decisions of practically every other High Court in India & even with an earlier Division Bench decision of the Chief Court itself & we are called upon to re-examine the law laid down in it in view of this conflict.
13. Before considering the correctness of the Full Bench decision, it is necessary to point out that the present cases are not on all fours with that case. In the present case the suits were filed by the Municipal Board & the Deputy Commissioner of Gonda to enforce the contracts.
14. Even if the contracts have not been executed in the manner required by the provisions of S. 97, sub-ss. (1) & (2) it is by no means clear that they are void. Sub-section (3) of S. 97 thus states the consequence of a non-compliance with the requirements of the first two sub-clauses:
“If a contract to which the foregoing provisions of this section apply is executed otherwise than in conformity therewith it shall not be binding on the Board.”
15. This sub-section does cot declare the contract altogether void. It only declares tint the Municipal Board shall not be bound.
16. In view, however, of a decision of the Madras High Court in Mohamed Rowther v. Tinnevelly Municipal Council, A.I.R(25) 1938 Mad. 746, in interpreting a similar provision of the Madras District Municipalities Act, in which it was held that a contract which did not bind one party to it did not bind the other either. Mr. Ram Bharossey Lal preferred to argue the matter on the assumption that a contract which failed to comply with the provisions of S. 97 U.P Municipalities Act, was void & not binding on either party. It is, therefore, not necessary to give decision on the interpretation of Section 97 of the Municipalities Act. It is agreed between the parties to the appeal that the contracts in S.C.A No. 386 of 1943 & Section 25 application No. 35 of 1943 do not comply with the requirements of Section 97 of the U.P Municipalities Act, & are void & the contract in Application No. 43 is not in accordance with Nazul rules & is void.
17. In Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, the pltf. agreed to sell to the Municipal Board of Lucknow a certain amount of coal. The contract was in writing but was not signed by any of the persons specified in els. (a) & (b) of Sub-s. (2) of S. 27. The pltf. gave the required security & delivered most of the coal which he had undertaken to sell. He was paid a major portion of the price but Rs. 7,066-10-4 remained to be paid. He accordingly sued for recovery of this sum & of a sum of Rs. 3,742-9-4 out of the security deposit. The Court of first instance decreed the suit. The Board appealed & one of the questions referred to the Full Bench for decision was:
“Is the contract pleaded in paragraph 2 of the plaint (Ex. 11) void by reason of the provisions of Sections 96 & 97 of the U.P Municipalities Act, 1916. If the answer is the affirmative, can any relief be given to the pltf. under the provisions of Sections 65, 70 & 72 of the Contract Act?”
18. It is not necessary for us to enter into the question of the validity of the contracts in these cases, because, as I have already stated, these cases have been argued on the assumption that the contracts are void for non-compliance with the requirements of Sub-ss. (2) & (3) of Section 57 of the U.P Municipalities Act & the Nazul Rules.
19. With regard to the second part of the question, before the Full Bench reliance was placed by the pltf.'s learned Advocate only upon Section 65 of the Contract Act. In dealing with that section the learned Chief Judge held that, although the contract was void from its inception & must be held to have been discovered to be so from the date it was entered into, yet, in accordance with the decisions of their Lordships of the Privy Council in Annada Mohan v. Gour Mohan, 50 I.A 239 & in Satgur Prasad v. Har Narain Das, 9 O.W.N 196, it fell within the purview of S. 65. He, however, proceeded to consider the U.P Municipalities Act, & said:
“The Municipal Board of Lucknow & other similar boards within the provinces are clearly creatures of statute, that is U.P Municipalities Act (II [2] of 1916): vide, the definition of Board in S. 2 of the Act. By S. 6 of the same Act it is a body corporate by the same section it is vested with the capacity of suing and being sued in its corporate name, of acquiring, holding, & transferring property moveable & immoveable, & of entering into contracts.
It follows that the liability of the Municipal Board of Lucknow as a corporate body to make compensation to the pltf. in the present case must arise out of the provisions of U.P Municipalities Act, 1916 & not otherwise in matters arising out of a contract which has become void. According to express terms of Section 97 of the U.P Municipalities Act, 1916, the contract on which the pltf. relies not being under seal is not binding on the board. In my opinion, therefore, the necessary conclusion to which we are driven is that where a special law creates a corporate body & that body cannot enter into a contract except under seal no relief can be given to a person relying on a contract entered into between him & the board but not under seal even on quantum meruit, for a man cannot be allowed to do by indirect means what he is forbidden to do directly.
In my opinion the decision of the House of Lords in the case of Young & Co. v. The Mayor & Corporation of Royal Leamington Spa, (1883) 8 A.C 517 is a direct & clear authority for the conclusion just now stated.”
20. In the course of his discussion, the learned Chief Judge disagreed with a large number of decisions of various Indian High Courts and the only comment that he made about most of them was that they were not in accordance with the principles which he had deduced in his own judgment from the case of Young & Co. v. Mayor & Corporation of Royal Leamington Spa, (1883) 8 A.C 517.
21. Thus the only matter that requires consideration in connection with this decision is whether there is good ground for holding that the operation of Section 65 of the Indian Contract Act, is excluded because it is not made applicable by the force of the U.P Municipalities Act itself.
22. The leaned Chief Judge has relied upon an English decision to the exclusion of Indian decisions. It will not, therefore, be out of place to recollect that in Lasa Din v. Mt. Gulab Kunwar, 9 O.W.N 638, their Lordships of the Privy Council, in dealing with a case in which the decision was based upon decisions of the English Court of Appeal said:
“Their Lordships are not greatly oppressed by the authority of Reeves v. Butcher, (1891) 2 Q.B 509. It is, they think, always dangerous to apply English decisions to the construction of an Indian Act.”
23. With all respect to the learned Chief Judge, the case of Municipal Board, Lucknow v. S.C Deb 9 O.W.N 461, is one which fully justifies the warning, inasmuch as the decision of an English Court construing an English Act of Parliament not in pari materia with the Indian Statutes & not even forming the foundation of those statutes, has been allowed to prevail over Indian decisions, interpreting very similar enactments. Further, having considered the House of Lords case to which reference has been made, I find that it does not fully support the conclusions at which the learned Chief Judge has arrived but, in the view that I take, it is not necessary to go into this matter. It is considered in one of Madras cases which I shall quote.
24. The language used by the learned Chief Judge is also not accurate & tries to approximate the U.P Municipalities Act to the English Statute by speaking of contracts “under seal” although, by reason of S. 6, each Municipal Board is to have a seal, S. 97 of the Act does not require contracts with the Board to be under seal; all that it requires is that it should be signed by one of the persons mentioned in the section. The case of an Indian Municipal Board is, therefore, not a case of a corporation being bound only by a document under seal, as the language used by the learned Chief Judge seems to imply.
25. In the cases under consideration the contracts had received the sanction of the Board as required by Section 96 of the U.P Municipalities Act. The contracts were thus ones which the Board was not only authorised to enter into but which it had actually sanctioned. Further the property to which the contracts related had been delivered to the contractor. All that remained to be done was to carry out the legal procedure for the completion of the contracts, namely, the execution of written deeds signed by one of the officers mentioned in Section 97 of the U.P Municipalities Act. The provision is analogous to the provisions of, for instance, the Indian Registration Act or the Transfer of Property Act, which require certain transfers or other dispositions of property to be in writing. Further there are other enactments, like Sch. II of the CPC, & some of the Debt Acts, which only validate transfers in respect of which the permission of certain authorities has been obtained. The Contract Act itself enacts that certain contracts are void: see ss. 24 to 30.
26. It cannot possibly be argued that all contracts which are void by reason of any of the provisions of these statutes are excluded from the operation of Section 65 of the Contract Act. That would very greatly limit the scope of that section & the cases of Nisar Ahmad Khan v. Mohan Manucha, Raja, 1941 O.W.N 513 & Raja Mohan Manucha v. Manzoor Ahmad Khan, 1943 O.W.N 214 are direct authorities of the Judicial Committee for the proposition that Section 65 of the Contract Act, applies to those cases also in which a contract is found to be void by reason of a statutory provision. There is no reason why the same principle should not apply to a contract which is void for non-compliance with the provisions of Section 97 of the U.P Municipalities Act.
27. Section 63 embodies an equitable principle. That principle is that if a contract between two parties is found to be void, that is to say non-existent in law, both parties to it should be restored as nearly as possible to the position which they would have occupied if the contract had in fact, as in law, not come into being. There is no reason why corporations or juristic persons should be placed on a different footing in this respect from real persons.
28. If the reasoning adopted by the learned Chief Judge were accepted, it would mean that Section 65 of the Contract Act, would not give relief in the case of any void contract entered into with any corporation. This would very greatly limit the scope of S. 65. Corporations as such are in no better— & no worse—position than other persons & if an individual can be made to restore the benefit which he has derived from a contract which is void for a legal defect, there is no reason why a corporation should not be compelled to do so.
29. According to the General Clauses Act a “person” shall include any company or association or body of individuals, whether incorporated or not. Thus when the word “person” is used in S. 65 Contract Act, it includes such corporations as a Municipal Board.
30. As to the argument that the liability of the Municipal Board must arise out of the U.P Municipalities Act, it means when examined, that a Municipal Board is cot subject to the general law. There is no justification for such a conclusion. Municipal Boards, no less than individuals, are governed by such general laws as the Indian Contract Act or the Transfer of Property Act or the Indian Registration Act. It is not necessary to incorporate all the terms of the general law into the special enactment creating a body corporate in order to make that general law applicable to that body corporate: if there is no exclusion of the general law, or any part of it, from operating in respect of a particular statutory body, it will apply to it with full force.
31. I have quoted above the entire reasoning of the learned Chief Judge in Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461 & it will be seen that he arrived at his conclusion not upon any provision excluding the operation of Section 65 of the Contract Act, but because there is no provision making S. 65 applicable. The general law does not require to be applied by each special law: it is applicable by its own force & it is not necessary to establish its application. It is for the person who seeks to exclude its operation to show that it is incompatible with the special law & unless this is clearly established the general law will apply.
32. For the reasons given above, I am unable to accept the reasoning of the learned Chief Judge in Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, in so far as he held that the operation of Section 65 of the Contract Act, within the scope of which even according to him, cases such as these fail, is excluded by the force & context of the U.P Municipalities Act.
33. In Arunachala Nadar v. Srivilliputtur Municipal Council, A.I.R(21) 1934 Mad. 480, a Division Bench of the Madras High Court discussed the matter at length & said:
“Now if a Municipality make an agreement which is discovered to be void because it is not under the signature of two councilors as provided by Section 45 of the Madras Act, 4 of 1884, can it be said to go behind the statute or to render its provisions nugatory, if such an agreement is brought within the ambit of Section 65 of the Contract Act? The short answer to this question would seem to be that the Municipalities Act is silent about & therefore, not concerned with such an agreement. The distinction between agreements and contracts is well known & it would have been quite easy to provide that every agreement made on behalf of a Municipal Council shall be immune from the provision of 65, Contract Act, but there is nothing of the kind in the Act. The Act only states that in certain circumstances contracts shall be not binding on the council. Sections 45 & 46 are only concerned with contracts. If a council makes a promise it is an agreement; if that agreement is not enforceable by law it is said to be void; & when an agreement is discovered to be void any person who has received any advantage under such agreement is bound to restore it. If it is held that a Municipality is a person who can make agreements, then, if such person is treated under the general law, can it be said that a salutary provision has bee a defeated?
There is nothing salutary in allowing rate-payers to escape their statutory obligation more easily than other persons. The legislature is considering the welfare of the community as a whole, & there is no cause for surprise that while making special provision in terms as regards contracts, it left agreements to be governed by the general law. Mr. Srinivasa Ayyangar argues that the special overrides the, general; a maxim of universal acceptance, but before its application one must first find that there is a special law. If agreements are not specially mentioned they are under the general law. Probably the idea that to apply S. 65 would go behind the statute is derived from the English leading case in this matter: Young & Co. v. Mayor, Corporation of Royal Leamington Spa, (1883) 8 A.C 517. In that case an engineering firm had spent between £6,000 & £7,000 upon improvements in Leamington & the Court held that inasmuch as the contract was not sealed as required by the Statute ‘the suit did not lie. On the facts of this particular case Lindley L.J, finds that to allow the claim would in effect be repealing the Act of Parliament & depriving the rate-payers of that protection which Parliament intended to secure for them. But this language need not necessarily be-imported to India. We can hardly say that if this claim is allowed we shall in effect be repealing the Municipalities Act or depriving the rate-payers of that protection which the legislature intended to secure for them. Because obviously by its language which is the best guide 11 a legislature's intentions it has not made this provision in regard to agreements, & on general principles it is hard to see why it should make such a provision. In the same English case Young & Co. v. Mayor, Corporation of Royal Leamington Spa, (1883) 8 A.C 517, at p. 586 of 8 Q.B Brett L.J, evidently considers that the decision to which he is constrained to come, causes injustice, & Lindley, L.J, describes it as ‘hard & narrow.’ On appeal Lord Blackburn (Young & Co. v. Mayor, Corporation of Royal Leamington Spa, at p. 527) observed: ‘It is true this works great hardship.’
34. This decision was followed in Madura Municipality v. Raman Servai, A.I.R(23) 1936 Mad. 98 & the same law was laid down in Mohamed Bowther v. Tinnevelly Municipal Council, A.I.R(25) 1938 Mad. 746, which was also a suit by a Municipal Council in similar circumstances.
35. In Municipal Board, Agra v. Babu Ram Lal, A.I.R(23) 1936 ALL. 723, it was held that if a contract was void for non-compliance with the provisions of Section 96 of the U.P Municipalities Act, the principle of quantum meruit applied & relief could be granted directing the restoration of the benefit derived by one of the parties.
36. There are numerous other decisions of various High Courts but it is not necessary to refer them. They have all been discussed in the judgment in Ram Nagina Singh v. Governor General in Council, 84 C.L.J 275. Sinha, J. exercising the original jurisdiction of the Calcutta High Court considered the question whether the principle of restitution embodied in Section 65 of the Contract Act, is applicable to a case where an agreement entered into between the parties is void by reason of non-compliance with an express statutory provision at great length. At p. 304 of the report ha stated his conclusions thus:
“It will be seen that Judicial opinion in India has not been uniform on the question whether S. 65 should be applied where an agreement is entered into by the parties which is discovered to be void by reason of failure to comply with statutory requirements. As Sir Lawrence Jenkins pointed out in Harnath Kuar v. Indar Bahadur Singh, 50 I.A 69, the question has to be determined on the terms of the section itself and not by reference to English decisions. If the facts of the case can be brought within the scope of S. 65 it should be held to apply. The section enunciates the principle of restitution and should be liberally construed in order to do equity & justice between the parties. The intention of the section is to prevent a party to avoid agreement to retain benefits received under it. The agreement may be void on grounds of fact or on grounds of law. There is nothing in the section to restrict it to agreements which are void on grounds of fact. The only requirement is that the benefit must have been received under an agreement before discovery that it was void.”
37. I entirely agree with the view expressed in the above words. The result is that I would hold that Section 65 of the Contract Act, is applicable to all the above cases.
38. In Second Appeal No. 886 of 1943, all the points raised were decided by the trial Court, but not by the lower appellate Court, which dismissed the suit on the basis of the decision in Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461 & did not consider the other pleas raised by the deft. The case will, therefore, go back to the lower appellate Court for a consideration of the other points raised by the deft, & for disposal de novo in the light of this decision holding that Section 65 of the Contract Act, applies & warrants the grant of relief to the plff. The appellant will get his costs of this Court, but coasts of the trial Court will abide the result.
39. In S. 25 Application No. 85 of 1943 the sole point raised by the deft, was that the contract was void & could not form the basis of the suit. In the view which I have taken of the effect of Section 65 of the Contract Act, the applicant will be entitled to get a decree for the sum claimed by him on the basis of the principle of quantum meruit as embodied in S. 65. The application is, therefore, allowed & a decree for Rs. 211/4/0 is passed in favour of the plff. who is also allowed costs of both the Courts.
40. S. 25 Application No. 42 of 1943 was also decided on a preliminary point as to the non-applicability of Section 65 of the Contract Act, & other pleas remain to be decided. This case must go back to the trial Court for decision of the remaining points in the light of what his been said above as to the applicability of S. 65. The applicant will get his costs of this application from the opposite party but costs of the trial Court will abide the result.
Misra, J.:— I agree and have nothing to add.
Agarwala, J.:— The facts of the different connected cases have all been mentioned by my brother Kidwai. It is unnecessary to repeat them.
41. It is conceded that Section 96 of the Municipalities Act, was complied with in all these cases but that the form of execution of contracts prescribed in S. 97 was not followed. It was not disputed by the learned counsel for the Municipal Board that the agreement not having been executed as required by S. 97, was void. The main point that was argued before us was whether the Municipal Board is entitled to claim the benefit of Section 65 of the Contract Act. No other section of the Contract Act was relied upon.
42. Section 65 applies when: (a) an agreement is discovered to be void & (b) when a contract becomes void. The Indian Contract Act makes a distinction between an agreement & a contract. An agreement not enforceable by law is said to be void (S. 2(g)). A contract is an agreement enforceable by law — S. 2(h). An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others is a voidable contract—S. 2(i). A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable S. 2(j). Therefore S. 65 applies to agreements which are ab initio void as also to voidable contracts which subsequently become void. (see Harnath Kuar v. Inder Bahadur, 50 I.A 69 & Anand Mohan v. Gour Mohan, 50 I.A 239).
43. A void agreement being an agreement not enforceable by law, it follows that an agreement by a person who is incapable of giving his consent, e.g, a minor, it not an agreement at all & the term ‘void agreement’ is not applicable to an agreement by a person who is incapable of giving his consent. S. 65, therefore, does not apply to a case in which there is no agreement at all: in other words, where the so-called agreement is between persons one of whom is incompetent to give his consent or enter into an agreement at all. This was laid down by the Privy Council in Mohri Bibi v. Dharmodas Ghose, 30 I.A 114 : 30 Cal. 539, which was a case of an agreement by a minor.
44. A corporation is a juristic person & there is no reason to exclude it from the operation of S. 65 provided it has the capacity of entering into an agreement & has actually entered into it. Where a statute creates a corporation & lays down that a corporation has not got the capacity to enter into an agreement, unless it complies with a certain form or makes its will known in a particular manner, it is obvious that S. 65 will have no application even though the corporation might have received an advantage under an assumed agreement. In this respect, the principle applicable to natural persons must also clearly apply to a juristic person like a statutory corporation. But where the form prescribed by the statute does refer to the capacity of the corporation to enter into a contract and merely makes the agreement unenforceable by law against it, the statutory provision will not debar the applicability of S. 65 because that section applies even though an agreement is void ab initio. Therefore, in all cases of statutory corporations required by the statute to act in a particular manner, what one has to see is whether the requirement of law contravened refer to the capacity of the corporation to enter into a contract, or whether they refer to the enforcibility of the agreement by law.
45. We have, therefore, to determine whether the formalities prescribed by Section 97 of the Municipalities Act, refer to the capacity of a Municipal Board to enter into a contract or are merely forms which the law prescribes in order that an agreement may be binding.
46. In this connection Sections 96 & 97 of the Municipalities Act, have to be considered. These sections are as follows:
S. 98.—“Sanctioning of contracts.—(1) The sanction of the beard by resolution is required in the case of every contract (a) for which budget provision does not exist, or (b) involving a value or amount exceeding one thousand rupees in the case of a contract by the board of a city & two hundred & fifty rupees in any other case.
(2) Any contract other than a contract of either description specified in sub-section (1), may be sanctioned by resolution of the board, or by a committee of the board (not being an advisory committee) empowered in this behalf by Regulation, or by any one or more than one officer or servant of the board so empowered…….”
S. 97.— “Execution of contracts.—(1) Every contract made by or on behalf of a board whereof the value of the amount exceeds Rs. 250 shall be in writing…………
(2) Every such contract shall be signed (a) by the president or a vice-president & by the executive officer or a secretary, or (b) by any person or persons empowered under sub-s. (2) or (3) of the previous section to sanction the contract if further & in like manner empowered in this behalf by the board.
(3) If a contract to which the foregoing provisions of this section apply is executed otherwise than in conformity therewith it shall not be binding on the board.”
47. It will be observed that S. 96 refers to the sanctioning of contracts or, in other words, to the expression of the board's will with regard to certain proposals, or the making of agreements, while S. 97 refers to the form in which agreements shall be executed. The difference in the effect of the two sections may be illustrated by an example. Let us assume that there is a proposal for an agreement before the board of a city of a value or amount exceeding Rs. 1000. Under S. 96, in order that there may be an agreement, all that is required is that there may be a resolution of the board. The proposal by a third person coupled with the resolution of the board, duly communicated to that third person, amounts to an agreement between the board & third person. The agreement, however, will not be enforceable by law unless the formalities prescribed under S. 67 are complied with.
48. In the present case it is conceded that the provisions of S. 96 were complied with. The board, therefore, had the capacity to enter into the agreement & did enter into it. But the agreement could not be enforced in law because the form prescribed in S. 97 was not gone through (assuming that S. 97 makes such contracts void altogether even against parties other than the board). If there had been a contravention of the provisions of S. 96, the board had not the capacity to enter into the agreement at all & the benefit of S. 65 could not have been claimed. As, however, the provisions of S. 96 were complied with, there is nothing to prevent the board from claiming the benefits of Section 65 of the Contract Act. It is clear that in so holding there is no contravention of S. 97 at all because that section refers to the enforcibility of such agreements while Section 65 of the Contract Act, on the other hand, does not deal with the enforcement of an agreement; it assumes that the agreement is void & then grants a relief on equitable considerations.
49. Under the Common Law of England, a corporation may make a contract provided it is evidenced by the corporate seal, Subject to certain exceptions, an unsealed contract is enforceable neither by nor against a corporation. These exceptions are first the use of seal may be dispensed with by the constitution of the corporation; secondly, routine contracts of frequent occurrence may be entered into without using the seal, & thirdly, a trading corporation may enter into a contract without a seal provided that it relates to the subjects & purposes for which the trading corporation was incorporated. South of Ireland Colliery Co. v. Maddle, (1868) L.R 3 C.P 463. The fourth exception relates to non-trading corporations, such as urban & rural district councils, & is to this effect:
“Whether such a corporation makes a simple contract in order to fulfil the purposes for which it was created, & the contract is performed by one of the parties, then an action lies against the party who has had the benefit of the performances.” Clarke v. Cuckfield Union (1852) 21 L.J.Q.B 349; Lawford v. Villericay Rural District Council, (1903) 1 K.B 772. See the Law of Contracts by Chesire & Fifoot, pages 270, 271.
50. Wherefore, however, the statute expressly provides that a contract of certain value must be entered into under the seal of the corporation, & the provisions are mandatory, it has been held that the exceptions do not apply because the corporation has no capacity to enter into a contract of that value except under seal. In Church v. Imperial Gas Co., (1838) 6 Ad. & E. 846 at p. 861, Lord Denman said that it was only in that way (i.e, by the use of the seal) that a corporation could express its will or do any act. And Rolfe B. in delivering the judgment of the Court of Exchequer in Mayor of Ludlow v. Chareton, (1840) 6 M. & W. 815 at p. 822 said:
“It is quite clear that there was nothing to enable the corporation of Ludlow to contract with the deft, otherwise than in the ordinary mode under the corporation seal.”
51. These cases were referred to with approval in Young and Co. v. Corporation of Royal Leamington Spa, (1883) 8 A.C 517 at p. 525. In that case Section 174 of the Public Health Act of 1875 had to be considered. That section provided:
“With respect to contracts made by an urban authority under this Act, the following regulations shall be observed; (namely)
(1) Every contract made by an urban authority whereof the value or amount exceeds fifty pounds shall be in writing & sealed with the common seal of such authority, ….”
52. In the Public Health Act of 1875 there was no provision corresponding to Section 96 of the U.P Municipalities Act. The provisions of S. 174 were construed as referring to the capacity of a corporation to enter into a contract of value exceeding fifty pounds & it was, therefore, held that even though the urban local board governed by the Act had received the benefit of an agreement which was entered into without the seal of the board, it could not be sued for the amount under doctrine of quantum meriut because the mandltory provisions of the statute must prevail. This case has to be read in the light of the common law rule & the previous authorities. Read in that light, it is obvious that the case proceeded on, the assumption that the local board had not the capacity to enter into a contract of value exceeding fifty pounds unless the contract was evidenced by writing & the seal.
53. With regard to the necessity of strictly complying with the statutory provisions relating to the incapacity of corporations to enter into contracts of certain value except under seal, Lord Barnwell in the above case ((1883) 8 A.C 517), stated:
“The Legislature has made provisions for the protection of rate-payers, share-holders & others who must act through the agency of a representative body by requiring the observance of certain solemnities & formalities which involve deliberation & reflection. That is the importance of the seal. It is idle to say there is no magic in a wafer…. The decision may be hard in this case on the pltfs., who may not have known the law. They & others must be taught it, which can only be done by its enforcement.”
54. The Privy Council decision in Mohori Bibis case, 30 I.A 114 : 30 Cal. 539, concerned a case of contract by a minor & it was held that benefit under S. 65 could not be claimed by the promisee as against the minor. The principle in both cases, that of a contract by a minor & that by a corporation which is incapable of contracting except under seal in matters of contract of certain value is the same. But the real question to be determined in all such cases is whether the form prescribed by law refers to the capacity of the corporation to contract or it does not.
55. The matter has been considered in several cases in India, but the views expressed are not uniform.
56. In Abaji Sitaram v. Trimbak Municipality, 28 Bom. 66 the Municipality of Trimbak granted to the deft, the right of collecting certain tolls & taxes for a period of 14 months on a consideration of payment by the deft, of a sum of Rs. 15001. The Bombay District Municipal Act, II of 1884, by S. 30, required such a contract to be sealed with the seal of the Municipality. The contract was not so sealed. The deft, objected and failed to pay the balance. The Municipality brought a suit for recovery of the balance. The Court held that though the contract was not under seal, still as there was an executed consideration, the suit was maintainable. The Court referred to Section 23 of the Contract Act, & held that section did not apply. Though the reference to S. 23 was hardly relevant, the decision can be justified under Section 70 of the Contract Act. It could not, however, be justified under the provisions of Section 65 of the Contract Act, because the provisions of Section 30 of the Bombay Municipal Act, II [2] of 1884, incapacitated the board to enter into a contract of the value exceeding Rs. 500 otherwise than by a writing signed by the President & by the two Commissioners of the Municipality with the common seal. But the decision may possibly be justified under Section 70 of the Contract Act.
57. In Badha Krishna Das v. Municipal Board of Banaras, 27 ALL. 592, decided before the decision of the Privy Council in Har Nath Kuar's case, 50 I.A 69, S. 65 was not applied because it was thought that the section had no application to a case in which a contract was void ab initio. This view is no longer tenable.
58. In Raman Chetti v. Municipal Council of Kumbakonam, 30 Mad. 290, the suit was by the-Municipal Council of Kumbakonam to recover damages & arrears from the deft., a toll contractor, who had purchased at public auction the right of collecting tolls for three years. The deft, collected tolls but there was no written agreement which was required by the provisions of Section 45 of the Municipalities Act. The suit was dismissed upon the ground that the contract was void. It was observed:
“The suit is based upon the agreement, & upon the agreement alone, & cannot be, to any extent, treated as * suit for money had & received. On the ground that the contract is invalid, the decree of the lower Court must be set aside & the suit dismissed.” Neither S. 65 nor Section 70 of the Contract Act were considered.
59. In Mathura Mohan v. Ram Kumar, 43 Cal. 790, a certain piece of land which had been acquired by the District Board was agreed to be re-transferred to the original owner on payment of a certain sum. The owner deposited the amount with the District Board. The agreement, however, was not in writing & signed by the Chairman & two other members of the Board with the common seal as required by rules in a case involving a value of above Rs. 500. The District Board thereafter did not sell to the original owner but sold it to a third party. The original owner sued the purchaser & the District Board for the recovery of the amount deposited by him & in the alternative for specific performance of the contract & also for recovery of damages. The contention-of the purchaser was that the agreement with the owner not being executed as required by the rules was void & no relief could be granted to the owner. It was held that though the agreement was void, the Board was bound to refund the amount it had accepted. It was observed:
“It cannot be disputed that where a corporation receives money or property under an agreement, which turns out to be ultra vires or illegal, it is not entitled to retain the money. The obligation to do justice rests upon all persons, natural & artificial; if one obtains the money or property of others without authority, the law, independently of express contract, will comple restitution or compensation.” Wenkin v. Emigh, (1916) 218 U.S 27.
60. In Mohammad Ebrahim v. Commissioner for the Port of Chittagong, 54 Cal 189, an agreement the value of which exceeded Rs. 2500 was executed by the Port Officer of Chittagong, by his proxy, the Port Officer of Moulmein, on behalf of the Commissioners for the Port of Cbittagong, by which a towing vessel was let out by the Port Commissioners for operations outside the Chittagong Port. The agreement was in contravention of S. 29 of Chibtagong Act, 1914. S. 28 lays down:
“(1) The Commissioner may enter into contracts authorised by this Act which any person for the execution or supply of any works, labour, materials, machinery, stores, or for other matters necessary for carrying into effect the trusts & purposes of this Act.
(2) Any such contract, the value of amount of which does not exceed Rs. 2500, may be made by the Chairman in the case of any work or matter which he is authorised to carry out by this Act or the rules or by laws thereunder or which has been sanctioned by the Commissioners, hut other contracts shall not be entered into except in accordance with a resolution passed by the Commissioners in meeting.”
61. S. 29 which lays down the mode of executing contracts & agreements is as follows:
“(1) Any contract, the value or amount of which does not exceed Rs. 2500, made by the Chairman for and on behalf of the Commissioners may be made in such manner & form as, according to the law for the time being administered in Chittagong, would bind himself such contract were on his own behalf.
(2) Every contract or agreement by or on behalf of the Commissioners which shall exceed the sum of Rs. 2500 shall be in writing & signed by the Chairman or vice Chairman & by two other Commissioners, & shall be sealed with the common seal of the Commissioners.”
62. It was held that the agreement was void as it contravened S. 29, but that the pltfs. were entitled to recover quantum meruit for the services rendered by them to the defts. It may be observed that the provisions of Sections 28 & 29 of the Chittagong Act, are similar to the provisions of Sections 96 & 97 of the U.P Municipalities Act; S. 28 enabled the Commissioners to enter into an agreement. The agreement was entered into but the agreement was not enforceable at law because the form under which the agreement was required to be executed was not followed.
63. In Municipal Board, Lucknow v. Debi Das, 1 Luck. 444, it was held that, whether the contract was void under S. 96 or under Section 97 of the U.P Municipalities Act, Section 65 of the Contract Act, afforded relief to the pltf. The attention of the Court was not drawn to Mohori Bibi's case. The decision was right (speaking with respect) so far as the effect of S. 97 is concerned, but I am unable to follow it so far as the effect of S. 96 is concerned.
64. In Municipal Board, Lucknow v. S.C Deb, 9 O.W.N 461, there was an agreement by the Municipal Board of Lucknow to purchase a certain quantity of coal from the pltf. The pltf. deposited a cash security of Rs. 5000 for the due performance of his part of the contract & supplied a part of the quantity, of coal agreed upon. The Municipal Board paid a part of the price. The pltf. sued to recover the balance of the price to the extent of Rs. 7066-10-4 & also the sum of Rs. 3742-94 on account of security deposit. The defence inter alia was that the agreement was not binding on the board by reason of Sections 96 & 97 of the U.P Municipalities Act, not having been complied with. The Sub-ordinate Judge of Lucknow gave a decree to the pltf. The Municipal Board appealed to the Chief Court A Division Bench before which the appeal came up for hearing referred two questions to a Full Bench for opinion, the first of which was:
“Is the contract pleaded in para 2 of the plaint (Ex. 11) void by reason of the provisions of Sections 96 & 97 of the U.P Municipalities Act, 1916. If the answer is the affirmative, can any relief be given to the pltf. under the provisions of Sections 65, 70 & 72 of the Contract Act?”
65. At the time of hearing, reliance was placed upon Section 65 of the Contract Act, alone & not upon ss. 70 & 72. It was conceded before the Full Bench that S. 96 had not been contravened but that the form prescribed by S. 97 had not been complied with. The learned Chief Judge after holding that the contract was void by reason of S. 97 held that the benefit of S. 65 could not be given to the pltf. The learned Chief Judge observed that although the contract fell within the purview of Section 65 of the Contract Act the provisions of Section 97 of the Municipalities Act, excluded the application of that section on the principle generalia specialibus non derogant. In support of his view the learned Chief Judge relied upon the decision of the House of Lords in the case of Young & Co. v. Mayor & Corporation of Royal Leaminton Spa, (1883) 8 A.C 517, & also upon Douglas v. Rhyl Urban District Council, (1913) 2 Ch. 407. With all respect I may state that the learned Chief Judge failed to observe, first, that while Section 174 of the Public Health Act, referred to the capacity of an urban local authority, to enter into a contract of the value exceeding 50 pounds, Section 97 of the D.P Municipalities Act, when read along with S. 96 of that Act, did not have that effect & secondly, the principle generalia specialibus non derogant had no application to the case. The principle applies only when the provisions of a special & particular statute are in conflict & inconsistent with the provisions of a general statute. The provisions of the Municipalities Act which may be taken to be a special statute referred only to the execution of a contract & rendered the contract void if it was not executed in that form Section 65 of the Contract Act, however, assumes that the contract is void & then lays down the rule that in such a case the party receiving a benefit must make compensation for the same to the other party. The two provisions are, therefore, not in conflict with each other & the special law cannot be said to override the general law.
66. In Srivilliputur Municipal Council v. Arunachala Nadar, A.I.R(20) 1933 Mad. 332, Walsh, J. held that where the contract was void under ss. 44 & 45, Madras District Municipalities Act, no relief could be given under Section 65 of the Contract Act. It is not clear from the report whether the provisions contravened referred to the capacity of the Municipality or whether they referred to the form in which an agreement which could be entered into by the Municipality had to be executed. ???