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  • Reserve Bank of India. Hence the provisions of S. 65 of the Indian Contract Act
  • FOREIGN EXCHANGE REGULATION ACT 1947
  • provisions of S. 5 and S. 21 of this Act
  • provisions of S. 65 of the Contract Act.
  • Art. 47 of the Indian Limitation Act.
  • provision of S. 4 of this Act
  • Art. 47 of the limitation Act
  • S. 18 of the Limitation Act.
  • S. 65 of the Contract Act
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Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Acts
  • Reserve Bank of India. Hence the provisions of S. 65 of the Indian Contract Act
  • FOREIGN EXCHANGE REGULATION ACT 1947
  • provisions of S. 5 and S. 21 of this Act
  • provisions of S. 65 of the Contract Act.
  • Art. 47 of the Indian Limitation Act.
  • provision of S. 4 of this Act
  • Art. 47 of the limitation Act
  • S. 18 of the Limitation Act.
  • S. 65 of the Contract Act
Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The appeal challenges the judgment dated 6-1-1977 and the decree signed on 19-1-1977 in Money Suit No. 107/61 of 1973/76 (learned IInd Additional Subordinate Judge, Ranchi) which dismissed the plaintiff's suit with costs. The sole original plaintiff died during the pendency of the appeal and his heirs were substituted.

Factual narrative as found in the opinion: the plaintiff, who had a close family relationship with the defendants (described as Bahnoi/Phupha), sought to purchase an American car (an "IMPALA"). Defendant 1 (the person abroad in the U.S.A.) represented that he could procure and import the vehicle. The plaintiff made several payments (in Indian rupees equivalent to specified dollar sums) at defendants' directions: sums recorded in the pleadings and accepted by the trial court included Rs. 7,500 (equivalent to $1,000), Rs. 15,000 (equivalent to $2,000), Rs. 9,565 (rupee equivalent of $1,275.35), and Rs. 13,000 (freight and related demands) — a total sum referred to in the opinion as Rs. 45,065.

The car was brought to India but the plaintiff was informed subsequently that substantial custom dues were required; the car was ultimately auctioned by a State Trading Corporation for Rs. 10,800. The plaintiff sued for recovery of the amounts advanced and claimed Rs. 5,000 as damages for mental pain and agony. The trial court accepted, as a factual matter, that the payments had been made and that the defendant had purchased the car, but dismissed the suit on legal grounds, holding that the contract was void ab initio under the Foreign Exchange Regulation Act, 1947 (FERA) and that the plaintiff could not recover under S. 65 of the Contract Act. The present appeal challenges those legal conclusions.

Legal Issues Presented

  1. Whether the amounts alleged to have been paid by the plaintiff to or at the direction of defendant 1 were in fact paid and, if so, whether they are refundable (Issue No. V as framed by the trial court).
  2. Whether the suit (or specific payments) was barred by the law of limitation (Issue No. IV as framed by the trial court), including the effect of Ext. 1.C (letter dated 6-4-1971) as an acknowledgment and the application of Article 47 and Section 18 of the Limitation Act.
  3. Whether the contract and payments were void ab initio as being in contravention of Ss. 4, 5 and 8 (and punishable under S. 23) of the Foreign Exchange Regulation Act, 1947, and whether that legal character prevents recovery (including the applicability of S. 21 of FERA and S. 65 of the Contract Act).

Arguments of the Parties

Appellant's Arguments

  • The appellant contended the trial court misapplied and misinterpreted Ss. 4, 5 and 8 of FERA and was wrong to hold that the contract was void ab initio.
  • The appellant relied on Ext. 1.C (letter dated 6-4-1971) as an acknowledgment by defendant 1 of receipt of the sums (including $1,000 and $2,000) so that limitation should run from that date and the suit (filed 19-12-1973) was within three years.
  • The appellant argued that S. 65 of the Contract Act applied and that defendant 1, having retained benefits, was liable to restore them (i.e., not entitled to retain unjust enrichment arising from his own wrongs).
  • The appellant disputed that any provision of FERA had been contravened by the payments (including the payments channelled through Dr. Shrivastava and the payment to defendant 2) and denied that the transaction was unlawful so as to bar recovery.
  • The appellant also sought Rs. 5,000 as damages for mental pain and agony caused by defendants' failure to deliver the car as promised.

Defendants' Arguments (as set out in the written statement)

  • The defendants contended the suit was barred by limitation.
  • They argued that, even assuming money was given, the transactions were barred by the Foreign Exchange Regulation Act, 1947 — specifically that dealings contravening Ss. 4, 5 and 8 are prohibited and the contract was void (and punishable under S. 23).
  • Defendant 1 asserted he had warned the plaintiff (by letter dated 23-9-1969) that any import/transfer would require prior permission of the Government of India and Reserve Bank of India and had sent the complete rules; thus the plaintiff was on notice.
  • The defendants denied receipt of the various sums (denying receipt of Rs. 7,500, the alleged $2,000 via Dr. Shrivastava, Rs. 9,565, and Rs. 13,000) and thus denied the factual premise of the claim.
  • They argued that because the transaction was, in their submission, forbidden by FERA the plaintiff could not recover the money.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
D. Gobindram v. Shamji K. & Co., AIR 1961 SC 1285 That S.21 of FERA (sub-sections (2) and (3)) provides that a contract will not be rendered invalid merely because performance requires prior permission; an implied term is engrafted that nothing shall be done unless permission is granted, and legal proceedings to recover sums are allowed though enforcement of any decree may require Reserve Bank or Government permission. The court relied on the reasoning in this Supreme Court decision to conclude that contracts falling under S.5 of FERA are not necessarily void ab initio; instead S.21 regulates the effect and permits recovery while leaving enforcement subject to Reserve Bank/Central Government permission. This precedent was used to set aside the trial court's finding of voidness.

Court's Reasoning and Analysis

The appellate judge's analysis proceeded in a sequence that closely followed the statutory provisions invoked and the cited Supreme Court authority:

  1. Examination of FERA provisions: The court considered S.4, S.5 and S.8 of the Foreign Exchange Regulation Act, 1947, and concluded that S.4 (restrictions on dealing in foreign exchange at unauthorised rates) and S.8 (restrictions on import/export of currency and bullion) were not strictly applicable to the facts. The transaction involved payments in India to enable defendant 1 to acquire property (a car) outside India, so S.5 (restrictions on payments for acquisition of property outside India) was the provision to be examined.
  2. Interpretation of S.5: The court noted that S.5 does not constitute an absolute prohibition; the restrictions in S.5 are expressly subject to any general or special exemption granted by the Reserve Bank of India (RBI). Hence, payments under S.5 are contingent upon RBI permission — they are not ipso facto void at inception.
  3. Role of S.21 of FERA: The court relied on S.21(2) and S.21(3), which provide that an agreement is not rendered invalid if it is a term that the relevant act shall not be done unless permission is granted, and that legal proceedings to recover sums may be brought though enforcement of any judgment or order may be restricted unless permission is granted. The court emphasized that S.21 prevents a party from using the Act as a shield to avoid contractual obligations and that an implied term is engrafted requiring permission prior to doing the prohibited act.
  4. Precedent application: Quoting and relying on D. Gobindram v. Shamji K. & Co. (AIR 1961 SC 1285), the court reiterated that the effect of S.21 is to prevent FERA being used to render agreements void and to transfer the responsibility of obtaining permission to enforce any decree to the decree-holder.
  5. Consequence for S.65 of the Contract Act: Because the court held the contract was not void ab initio but contingent (dependent on RBI exemption), S.65 of the Contract Act (which requires restoration of advantages received under a contract that is later discovered to be void or becomes void) was held to be applicable. The appellate court rejected the trial court's view that S.65 could not apply because of alleged prior knowledge by the parties or because the contract was void ab initio.
  6. Limitation analysis: The court examined Issue No. IV (limitation). It accepted Ext. 1.C (letter dated 6-4-1971) as a valid written acknowledgment under S.18 of the Limitation Act and held that the limitation period for recovery ran from that acknowledgment. The court also held Article 47 of the Limitation Act (three-year limitation for recovery of money paid upon an existing consideration which afterwards fails) applied; the auction of the car was the event when consideration failed and the limitation period ran from that event (the opinion corrects a date in the memo of appeal to 23-3-1972). Overall, the court found the suit to be within time.
  7. Factual findings accepted and effect: The appellate court accepted the trial court's factual findings that the payments were made (the amounts identified) and that the defendant 1 had purchased the car. Because the contract was not void ab initio and the payments were acknowledged, the sums advanced were recoverable from defendant 1. The court also accepted the appellant's claim for damages for mental pain and agony in a modest amount.
  8. Remedies and enforcement caveat: While permitting recovery, the reasoning recognizes that S.21(3) of FERA subjects enforcement of any decree (to the extent such sums fall under the Act) to the permission of the Central Government or RBI. The opinion therefore distinguishes between the plaintiff's right to a decree and the administrative permission that may be necessary to give effect to and enforce that decree with respect to foreign exchange matters.

Holding and Implications

Holding:

APPEAL ALLOWED. The appellate court set aside the judgment and decree of the learned trial court and decreed the suit on contest with costs. The court awarded the plaintiff (through his substituted heirs) recovery of the amounts advanced (as acknowledged/accepted in the proceedings), granted Rs. 5,000 as damages for mental pain and agony, allowed pendente lite and future interest at 9% per annum until realisation, and allowed costs (pleader's fee fixed at Rs. 64/-).

Direct consequences and practical implications:

  • The plaintiff (now represented by substituted heirs) succeeded on appeal and is entitled to a decree for repayment of the sums advanced as found by the courts and accepted in evidence, plus damages and interest, together with costs and the stated pleader's fee.
  • The court held that transactions of the kind in issue are not automatically void ab initio under FERA; S.5 must be read in conjunction with S.21 and the possibility of RBI exemptions, and S.21 permits recovery though it places conditions on enforcement.
  • The opinion follows and applies the Supreme Court authority (D. Gobindram v. Shamji K. & Co.) to reject the trial court's conclusion that the contract was void and to vindicate the plaintiff's entitlement to restitution under S.65 of the Contract Act when the agreement fails in its consideration.
  • As to enforcement, the decision reiterates that any steps to enforce sums that fall within the scope of FERA may require prior permission from the Central Government or Reserve Bank as contemplated by S.21(3) of FERA; the court's decree does not eliminate that administrative requirement for enforcement where applicable.

Note on broader precedent: The opinion primarily applies existing statutory interpretation and Supreme Court authority rather than announcing a novel legal principle; it corrects the trial court's interpretation and applies established law to allow recovery in the circumstances described.

Appeal allowed.

    Raj Kishore Sahay And Others v. Binod Kumar And Others

    1. This appeal, by the sole original plaintiff, is directed against the judgment dated 6-1-1977 and the decree signed on 19-1-1977 passed in Money Suit No. 107/61 of 1973/76 by Shri Hirday Narain, IInd Additional Subordinate Judge, Ranchi dismissing the suit with cost. On the death of the sole appellant during the pendency of this appeal his heirs have since been substituted.

    2. The case of the original plaintiff in short is that he is the Bahnoi of the defendant 2 and Phupha of defendant 1. The relationship between the parties was very cordial and the plaintiff had absolute faith on the defendants. In the month of June/July, 1969 defendant 1 who happens to be respondent 1 in the present appeal went to United States of America for higher studies on a scholarship. The plaintiff wanted to purchase an American car “IMPALA”. For this purpose in August, 1969 he wrote a letter to defendant 1 enquiring from him about the rules regarding the purchase of such a vehicle from the United States of America. In reply defendant 1 assured the plaintiff that there would be no difficulty in the matter but he sent an incomplete copy of the rules (Ext. 1) relating to the purchase and import of an American Car by an Indian Citizen. The plaintiff believed the representation of defendant 1 as true and asked him to proceed in the matter. In his letter of August, 1969 the plaintiff has enquired from defendant 1 whether it would be possible for him to bring the car to India for the use of the plaintiff after obtaining the necessary import licence and to get its ownerhsip transferred to the plaintiff.

    3. At the instance of defendant 1 plaintiff paid a sum of Rs. 7,500/- equivalent to 1000 Dollars to defendant 2 for meeting the expenses over the sending of defendant No. 1's wife and son to America, on the understanding that the said amount would be adjusted towards the purchase price of the car. The plaintiff had another relation namely Dr. Shrivastava in United States of America. The plaintiff suggested to defendant 1 that in case of any difficulty in purchasing and bringing of the car to India he should handover this amount of 1000 dollars to Dr. Shrivastava for the same purpose. Defendant 1, however informed the plaintiff that since Dr. Shrivastava had already acquired American Citizenship it was not possible for him to leave behind the car in India. Accordingly the plaintiff got a sum of 2000 dollars equivalent to Rs. 15,000/- paid to defendant 1 through Dr. Shrivastava for the purpose of enabling him to purchase the required car. By his letter dated 6-4-1971 (Ext. 1.c) defendant 1 acknowledged the receipt of 1000 dollars and 2000 dollars mentioned above. Defendant 1 had represented that the car in question will cost 4275 dollars and 35 cents. Accordingly, through Ext. 1.C defendant 1 asked the plaintiff to pay a sum of Rupees 9565/- being the rupee equivalent of the remaining 1275 dollars and 35 cents to defendant 2 which the plaintiff did. Whenever the plaintiff asked defendant 1 to speed up the matter defendant 1 assured him to remain absolutely carefree and need not worry in the least for the same.

    4. Thereafter defendant 1 became irregular in correspondence and asked the plaintiff to obtain the necessary import licence from Delhi. Plaintiff obtained the necessary licence and informed the defendant 1 through a telegram. Defendant 1 came to India on 8-10-1972 and when approached by the plaintiff informed him that Rs. 12,000/- being the freight charges may be paid to him. He further demanded a sum of Rs. 1000/- through his uncle on the same day. Accordingly the plaintiff paid Rs. 13,000/- as demanded by defendant 1. Thus a total sum of Rs. 45,065/- was paid by the plaintiff to defendant 1 towards the price of the IMPALA car including the freight charges. Plaintiff subsequently learned that the IMPALA car was brought to India but finally defendant 1 sent a telegram to the plaintiff for Rs. 75,000/- for the custom clearance of the car. Ultimately the car was auction sold by a State Trading Corporation for a sum of Rs. 10,800/- only. Accordingly the plaintiff brought the suit for the amount mentioned above along with Rs. 5,000/- as damages for his mental pain and agony on account of the failure of the defendant 1 to make ever the car to him.

    5. In the written statement on behalf of the defendants it was contended that the suit was barred by the law of limitation. Even assuming that the plaintiff gave the money to the defendants the same cannot be realised for breach of the provision of Foreign Exchange Regulation Act, 1947 (in short, the Act). Since the transaction in question was forbidden by law the suit cannot be decreed. Defendant 1 made it clear to the plaintiff through his letter dated 23-9-1969 that even if the car is brought to India it could not be transferred in the name of the plaintiff without prior permission of the Government of India and Reserve Bank of India. Defendant 1 had sent complete copy of the rules concerning the purchase and import of an American car to the plaintiff. No amount of Rs. 7,500/- was paid by the plaintiff to defendant 1 to meet the journey expenses of the wife and children of defendant 1. Defendant 1 did not receive 2000 dollars in U.S.A from Dr. Shrivastava at the instance of the plaintiff to enable him to purchase the IMPALA car. Since the defendant 1 did not receive any money from the plaintiff there is no question of any acknowledgment of the same in his letter dated 6-4-1971 (Ext. 1.C). Through his letter dated 31-1-1971 defendant 1 had informed the plaintiff that he had purchased the car at the cost of Rs. 4275 dollars 35 cent for his own use and not for the plaintiff. Defendant 1 further contended that Rs. 9565/- was never paid to his father (defendant 2) towards the payment of the price of the car. Defendant 1 further denied to have received Rs. 13,000/- from the plaintiff. It would thus appear that he has completely denied to have received a total sum of Rs. 45,065/- from the plaintiff on account of the purchase of the IMPALA car and the freight charges. On these and other grounds the defendant prayed that the suit be dismissed with cost.

    6. The learned Additional Subordinate Judge who heard the parties dismissed the suit on contest with cost. It is against this judgment that the present appeal has been filed by the original plaintiff.

    7. In this appeal he has contended that the judgment and decree passed by the learned Court below is bad in law. Actually the starting point of limitation should be 23-3-1971 the day on which the car was auctioned sold and the period of three years should have been counted from this date as per Art. 47 of the Indian Limitation Act. At any rate through Ext. 1.C which is a letter dated 6-4-1971 defendant 1 had acknowledged the receipt of the money from the plaintiff and therefore the limitation should start running from the same. In paragraph 9 of the judgment the learned Court below has held that the payments made by the plaintiff to defendant 1 were accepted as such. Defendant 1 had gone to America only sometime in June/July, 1969 and his wife and children has joined him there sometime in February, 1970. As such on 6-4-1971 which is the date of Ext. 1.C the period of three years cannot be said to have expired after advancing of the money by the plaintiff. The suit having been instituted on 19-12-1973 it was well within the period of limitation. Since it was defendant 1 who had induced the plaintiff to make the advance payment for the purchase of the car therefore he was bound both under law and equity to return the benefits which he had himself received as a result of his inducement. The learned lower Court has wrongly held that the contract for the purchase of an American car was void ab initio being in contravention of Ss. 4, 5 and 8 of the Act. Defendant 1 has retained the benefits of his own wrongs and make unjust enrichment by his deceitful means and therefore he is liable under law to return the money to the plaintiff as per S. 65 of the Contract Act. No provision of the Act was infringed by payment of 2000 dollars by Dr. Shrivastava to defendant 1 or the payment of Rs. 7,500/- equivalent to 1000 dollars to defendant 2 at the instance of defendant 1. Similarly so far as the payment of Rs. 9,565/- is concerned no provision of the Act can be said to have been contravened. The same is true about the payment of Rs. 13,000/- to defendant 1. The learned lower Court should have held that the appellant was entitled to a decree of Rs. 5,000/- on account of the mental torture suffered by him. On these grounds and others it was contended that the judgment of the learned Court below be set aside and the suit be decreed with cost.

    8. The only point for decision before me is whether this appeal is fit to be allowed or not.

    9. The learned Court below has framed Issue No. V as follows:—

    V. “Whether the amount was at all paid by the plaintiff to the defendants and whether the same is refundable?”

    He has discussed this issue from paragraph 5 to paragraph 10 of the judgment. In paragraph 5 to paragraph 9 the learned Court below has taken into consideration the factual aspect of the case and in the concluding portion of the paragraph 9 he has observed as follows:—

    “I, therefore, hold that so far as factual aspect of advances are concerned, the document and oral evidence is sufficient to show that the payment was made by the plaintiff and the Car was purchased by the defendant 1 in America.”

    From these findings of the learned trial Court it appears that he has accepted as correct that part of the case of the plaintiff in which he had alleged the making of the various payments to defendant 1 or as per his direction for the purchase of the IMPALA car. The discussion in these paragraphs show that the learned Additional Subordinate Judge has taken into consideration the claim of the plaintiff about the payment of Rs. 7,500, Rs. 15,000/-, Rs. 9,565/- and Rs. 13,000/-. In this connection, the learned Court below has taken into consideration the various letters (Ext. 1 series) so far as the payments made on account of these items are concerned. After a thorough discussion of the oral and documentary evidence on record the learned Subordinate Judge came to the abovementioned conclusion which I have quoted above.

    10. He has, however dismissed the suit of the plaintiff on legal grounds. According to him at the time when car was purchased in America the Foreign Exchange Regulation Act, 1947 was in force. He has heavily relied on its Ss. 4, 5 and 8 to show that the contract between the parties was ab initio void and therefore it could not be enforced. According to him this transaction was opposed to law as well as to public policy and was punishable under S. 23 of the Act. He held that on this account the contract was void and therefore the plaintiff could not have asked for the refund of the money advanced by him to defendant 1.

    11. On behalf of the appellants Shri N.K Prasad the learned Advocate has challenged these findings of the learned Court below. He has contended that the learned lower Court has misinterpreted the provision of Ss. 4, 5 and 8 of the Act and has wrongly come to the conclusion that the contract between the parties was ab initio void. Accordingly the learned lower Court also wrongly held that the provisions of S. 65 of the Contract Act were inapplicable and the plaintiff cannot be compensated for the amount advanced by him to defendant 1. Since the question for determination in the present appeal will mainly depend on the correct interpretation of these Sections I would like to examine them in detail.

    12. Section 4 of the Act deals with the restrictions on dealing in foreign exchange. It provides that except with the previous permission of the Reserve Bank of India no person will buy or otherwise acquire or borrow or sell or otherwise transfer to any person not being an authorised dealer, any foreign exchange. Its sub-sec. (2) provides that no person shall enter into any transaction for the conversion of Indian Currency or vice versa at the rates of exchange other than the rates for the time being authorised by the Reserve Bank of India without its permission. It will thus appear that the provision of S. 4 of this Act are not strictly applicable to the facts of the present case. There was no question of acquiring foreign currency at rates of exchange other than the rates for the time being authorised by the Reserve Bank of India. Further it appears that there was also no question of any sale or purchase of the foreign exchange. What was sought to be done by the plaintiff was that he wanted to purchase an IMPALA car and for this purpose he wanted to make the payment in Indian currency so that defendant 1 may pay for it in foreign exchange (dollar) in U.S.A Under these circumstances. I think that properly speaking it is S. 5 of the Act, which deals with restrictions on payments that would be applicable. Similarly the provision of S. 8 of the Act are also not attracted since this section deals with restrictions on import and export of certain currency and bullion which is not the fact in the present case.

    13. Coming to S. 5 of the Act it has to be examined whether this section completely prohibits for making of any payment to or for the credit of any person as consideration for or in association with the acquisition by any person of property outside India.

    14. The relevant portion of S. 5 runs as follows:—

    “(5) Restrictions on payments:— (1) Save as may be provided in and in accordance with any general or special exemption from the provisions of this sub-section which may be granted conditionally or unconditionally by the Reserve Bank, no person in, or resident in British India shall—

    (e) make any payment to or for the credit of any person as consideration for or in association with—

    (i) the receipt by any person of a payment or the acquisition by any person of property outside India;

    (ii) the creation or transfer in favour of any person of a right whether actual or contingent to receive a payment or acquire property outside India.”

    From the reading of this Section it becomes clear that there is no total restriction on making of the payments as per the provisions of this Act. The restrictions so imposed as per this section are subject to any general or special exemption which may be granted conditionally or unconditionally by the Reserve Bank of India. If no such permission is granted by the Reserve Bank of India naturally the law provides that the payment has to be restricted. However, if any such permission is granted by the Reserve Bank of India the payment becomes perfectly lawful and is therefore not restricted. In other words, it becomes clear that from the very inception the payments contemplated under S. 5 of the Act are not void rather they are contingent and dependent on granting of exemption by the Reserve Bank of India. The learned Court below has not taken into account this aspect of the matter and therefore has come to a wrong conclusion.

    15. In this connection a reference may also be made to S. 21 of this Act, which runs as follows:—

    “21. Contracts in evasion of this Act—

    (1) No person shall enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or of any rule, direction or order made thereunder.

    (2) Any provision of or having effect under, this Act that a thing shall not be done without the permission of the Central Government or the Reserve Bank, shall not render invalid any agreement by any person to do that tiling, if it is a term of the agreement that the thing shall not be done unless permission is granted by the Central Government or the Reserve Bank, as the case may be; and it shall be an implied term of every contract governed by the law of any part of British India that anything agreed to be done by any term of that contract which is prohibited to be done by or under any of the provisions of this Act except with the permission of the Central Government or the Reserve Bank, shall not be done unless such permission is granted.

    (3) Neither the provisions of this Act nor any term (whether expressed or implied) contained in any contract that anything for which the permission of the Central Government or the Reserve Bank is required by the said provisions shall not be done without their permission, shall prevent legal proceedings being brought in British India to recover any sum which, apart from the said provisions and any such term, would be due, whether as a debt, damages or otherwise, but—

    (a) the said provisions shall apply to sums required to be paid by any judgment or order of any Court as they apply in relation to other sums; and

    (b) no steps shall be taken for the purpose of enforcing any judgment or order for the payment of any sum to which the said provisions apply except as respects so much thereof as the Central Government or the Reserve Bank, as the case may be, may permit to be paid; and

    (c) for the purpose of considering whether or not to grant such permission, the Central Government or the Reserve Bank, as the case may be, may require the person entitled to the benefit of the judgment or order, and the debtor under the judgment or order, to produce such documents and to give such information as may be specified in the requirement.”

    16. This matter came up for consideration before the Hon'ble Supreme Court in the case of D. Gobindram v. Shamji K. and Co., AIR 1961 SC 1285. I can do no better that to quote paragraphs Nos. 11 and 12 of this judgment which are as follows:—

    “(11) No doubt, sub-sec. (1) prohibits contracts in contravention or evasion, directly or indirectly, of the Foreign Exchange Regulation Act and if there was nothing more, then the argument would be understandable. But, sub-sec. (2) provides that the condition that a thing shall not be done without the permission of the Reserve Bank shall not render an agreement invalid, if it is a term of the agreement that the thing shall not be done unless permission is granted by the Central Government or the Reserve Bank and further that it shall be an implied term of every contract governed by the law of any part of India that anything agreed to be done by any term of that contract, which cannot be done except with the permission of the Reserve Bank, shall not be done, unless permission is granted. Sub-section (3) allows legal proceedings to be brought to recover sum due as a debt, damages or otherwise, but no steps shall be taken to enforce the judgment, etc., except to the extent permitted by the Reserve Bank.

    (12) The effect of these provisions is to prevent the very thing which is claimed here, namely, that the Foreign Exchange Regulation Act arms persons against performance of their, contracts by setting up the shield of illegality. An implied term is engrafted upon the contract of parties by the second part of sub-sec. (2), and by sub-sec. (3), the responsibility of obtaining the permission of the Reserve Bank before enforcing judgment, decree or order of Court is transferred to the decree-holder. The section is perfectly plain, though perhaps it might have been worded better for which a model existed in England.”

    17. From this authoritative pronouncement of the Hon'ble Supreme Court it becomes clear that any such contract cannot be said to be void ab initio, notwithstanding the fact that the learned lower Court has held so. In view of this decision by the Hon'ble Supreme Court there is absolutely no manner of doubt in holding that an implied term is engrafted upon the contract of the parties by the second part of sub-sec. (2) and by sub-sec. (3) and the effect of the provisions of S. 5 and S. 21 of this Act is to prevent the very thing which is being claimed here namely that the Act arms persons against performance of the contract by setting up the shield of illegality. In the present case this is what is being sought to be done. After having accepted the case of the plaintiff so far as the payments to defendant 1 is concerned the learned Court below has defeated his claim on the ground that this contract is not enforceable inasmuch as it is against the provisions of law and is therefore void. It is clear that this finding of the learned Court below is erroneous and has to be set aside.

    18. In paragraph 10 of the judgment the learned lower Court has proceeded to consider the effect of his finding that this contract is void as per Ss. 4, 5 and 8 of the Act and is punishable as per S. 23 of the Act. Proceeding on this assumption he has taken up for consideration whether a decree for the refund of the money can be given to the plaintiff in such a case. In this connection, he has also taken into consideration the provisions of S. 65 of the Contract Act. He has held that both the plaintiff and defendant 1 were not so ignorant as to be unaware of the provisions of this Act. In this connection he has pointed out that the son of the plaintiff has gone to America from where he is used to send money through American Express Bank. The plaintiff used to pay in Indian currency to American Bank in India and its dollar equivalent used to be paid to his son in America. Therefore, he concluded that it could not be said that the plaintiff was not aware of the provisions of this Act. However, he tried to by-pass the Reserve Bank of India. He further held that since there was a direct statutory provisions in such a transaction the plaintiff cannot take advantage of S. 65 of the Contract Act because this was a deal to which this section will not apply. He has accordingly held that the plaintiff was not entitled to get back the money advanced by him.

    19. It may be mentioned, in this connection, that this finding of the learned Court below is also wrong. As held above the contract between the parties was not void ab initio. As per the decision of the Hon'ble Supreme Court mentioned above S. 21 regulates the provision of S. 5 of the Act and the Contract is not void. Under these circumstances this finding of the learned Court below also appears to be misplaced. For better appreciation I would however like to quote S. 65 of the Contract Act which runs as follows:—

    Section 65. “When an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such an agreement or contract is bound to restore it to the person from whom he received.”

    The learned Court below has held that as per the provisions of this Section it will apply only when an agreement is discovered to be void subsequently or when a contract becomes void. It does not apply to a case in which the contract between the parties was void ab initio. He has accordingly held that the plaintiff is not entitled to get the benefit of this section. This finding of the learned Court below is wrong. As stated above the contract between the parties was not ab initio void. It was a valid contract contingent on obtaining the exemption whether conditionally or unconditionally by the Reserve Bank of India. Hence the provisions of S. 65 of the Indian Contract Act will come to the rescue of the plaintiff and he will be entitled to get back the money advanced by him to defendant 1 along with interest. Thus it appears that this issue (Issue No. V) has wrongly been decided by the learned Court below. As a matter of fact, the amount paid by the plaintiff to defendant 1 or to his order is recoverable from him. As stated above the learned Court below has accepted the case of the plaintiff so far as the payments of the advances to defendant 1 are concerned. He has, however, defeated his claim on the grounds of Ss. 4, 5 and 8 of the Act. This finding of the learned Court below is obviously wrong and this issue should have been decided in favour of the plaintiff.

    20. The learned Court below has framed Issue No. IV as follows:—

    Issue No. IV. “Is the suit barred by limitation? He has taken up for consideration this issue in Paragraph 11 of his judgment and has concluded that the payment of Rs. 7,500/- alone is barred by limitation and no limitation applies in payment of other amounts. This finding of the learned Court below is also incorrect. No doubt in the plaint no date of payment of Rs. 7,500/- has been disclosed. However, it becomes clear from the plaint that defendant 1 went to America on scholarship in the month of June/July, 1969 and it was in August, 1969 that the plaintiff had expressed his desire to defendant 1 to arrange for the purchase of the IMPALA car. Therefore this payment of Rs. 7,500/- on this account cannot be said to have been made prior to August, 1969. In this connection, a reference may be made to Ext. 1.C which is a letter from defendant 1 to the plaintiff. In this letter which is dated 6-4-1971 there is a clear statement that so far as the account between the parties is concerned it is quite clear inasmuch as 1000/- was paid at the time of sending the family of the defendant 1 and 2000/- was paid through Dr. Shrivastava. It was further stated in this letter the balance amount of 1275/- may be paid to his father (defendant 2). Thus Ext. 1.C clearly shows that there is an acknowledgment of different payments made by the plaintiff to defendant 1 or on his account. As mentioned above since it was in August, 1969 that for the first time the plaintiff had written to defendant 1 to find out whether he can arrange for purchasing and sending an IMPALA car to India, the date of payment of Rs. 7,500/- equivalent to 1000 dollars cannot be before this date if the case of the plaintiff is accepted on this point. It will mean that on 6-4-1971 when defendant 1 through his letter (Ext. 1.C) had accepted the receipt of 1000 dollar it was definitely within the period of limitation. No doubt, in Ext. 1.C it has not been stated clearly whether the amounts mentioned in it are dollar or not but this fact has not been seriously challenged before me. From this it would appear that through Ext. 1.C the payment of 1000 dollar equivalent to Rs. 7,500/- has been accepted and it has been submitted on behalf of the appellant that it is from this date that the fresh period of limitation will start running. I find force in this contention. It appears that the learned Court below has not taken pains to properly peruse the plaint to find out that it was for the first time in the month of August, 1969 that the plaintiff had written to defendant 1 to find out whether in IMPALA car could be purchased for him and brought to India. Thus, obviously this finding of the learned Court below appears to be wrong. Moreover, in paragraph 9 of the judgment of the learned Court below these payments have been accepted and therefore it can safely be concluded that the amounts mentioned in Ext. 1.C relate to dollars. In this connection a reference may be made to the evidence of plaintiff (P.W 1) who has stated that Rs. 7,500/- was paid to defendant 2 in January/February, 1970. The learned Court below has held that the claim for this money had become time barred in February, 1973 since he has ignored Ext. 1.C as a letter of acknowledgment of the dues. He accordingly held that this amount was certainly barred by limitation. He has further held that Art. 47 of the limitation Act will not apply to the facts of the present case since it is a case when the contract between the parties was void ab initio. As stated above, this finding of the learned Court below is wrong and therefore Art. 47 of the limitation Act will apply to the facts of the present case. This Article provides for a limitation for three years. As per this article a suit can be brought for the realisation of the money paid upon an existing consideration which afterwards falls. In the present case the money was paid for the purchase of the IMPALA car. The car was purchased and brought to India but was subsequently auction sold for some reason or the other. It has been submitted before me on behalf of the appellant that it was only when the car was auction sold that the consideration of this contract had failed and therefore the limitation will start running from that date. In the memo of appeal this date had been shown to be 23-3-1977 which does not appear to be correct. It should be really 23-3-1972. In any view of the matter the suit was within three years of this date.

    21. In this connection a reference may also be made to S. 18 of the Limitation Act. It provides for the effect of acknowledgment in writing. Ext. 1.C is dated 6-4-1971. According to the plaintiff this is the acknowledgment for the payment of Rs. 7,500/- equivalent to 1000 dollar on account of defendant 1 for meeting the journey expenses of the family of the defendant 1 to U.S.A In Ext. 1.C whose contents I have referred to above there is a clear recital of the acknowledgment of the payment of 1000 dollar and also of subsequent payments of 200 dollars and 1275 dollar and the learned Court below has accepted the case of the plaintiff with respect to these payments. Therefore, obviously the period of limitation will start running with effect from this acknowledgment dated 6-4-1971. The suit has been brought on 19-12-1973 and therefore obviously it is within time. The learned Court below has held that Ext. 1.C is vague and uncertain and it could not be used as an acknowledgment. No reason has been assigned by the learned Court below for coming to those conclusions. I have perused Ext. 1.C and I find that there is no uncertainty or vagueness in the letter so far as the acknowledgment of the payments is concerned. Thus this finding of the learned Court below is also wrong.

    22. In paragraph 24 of the plaint, the plaintiff has claimed a sum of Rs. 5,000/- on account of mental pain and agoney suffered by him on account of wrongful action of defendant 1. In paragraph 28 of the written statement the defendants have denied it since according to them, the plaintiff did not make any payment and he backed out when the time came for making of the payment putting defendant 1 to loss and mental agony. However, this contention of the defendants cannot be accepted. The learned Court below has accepted the story of payments by the plaintiff. Moreover, it appears that whenever any request by Defendant 1 was made to the plaintiff for payment he always complied with the same till the car landed in India From Ext. 1 series also it appears that the plaintiff was very keen to get this car and was prepared to spend money over its purchase. This shows that he was keenly a waiting the handing over the car to him. He however could not get it in spite of his best efforts. This manner have caused him mental pain and agony. This would be all the more shocking to him in view of his implicit faith on defendant 1 and also in view of the close relationship between parties. It was on account of this close and good relationship with defendant 1 that the plaintiff went on making the various payments to him. It is thus clear that the plaintiff is entitled to get a modest sum of Rs. 5,000/- as claimed by him on account of mental pain and agony suffered by him.

    23. From the detailed discussions made above it becomes clear that the plaintiff has been able to prove his claim and is entitled to a decree.

    24. In the result this appeal is allowed on contest with cost. Pleader's fee Rs. 64/-. The judgment and decree of the learned Court below are set aside and the suit is decreed on contest with cost. The plaintiff will be entitled to pendente lite and future interest till realisation @ 9% per annum.

    Appeal allowed.

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    Raj Kishore Sahay And Others v. Binod Kumar And Others
    (Feb 29, 1988)