Raghupati Chatterjee v. Nrishingha Hori Das And Ors.

1. This is an appeal by the second defendant in a suit for recovery of immoveable property on establishment of title. The disputed land belonged to one Saha and was occupied by one Mallik as-a tenant under him. On the 15th June, 1886, Saha executed a mortgage-deed in favour of Das. This transaction, it has now been ascertained, was fictitious, and the mortgage was effected solely with a view to delay, if not to defeat, the creditors of Saha. Das sued on the mortgage, obtained a decree, and on the 7th November 1892, became purchaser at the sale which followed in due course. The fifth defendant is the representative-in-interest of Saha. The second defendant is the successor of Mallik. The plaintiffs are the representatives of Das. They commenced this action on the 2nd January 1914 for declaration of their title by purchase at the mortgage sale and for recovery of possession. The claim was contested by the second and fifth defendants; they united and urged that the mortgage was fictitious and had not vested the title in the plaintiffs. The Courts below have found that the mortgage was fictitious and was a fraudulent device to delay, if not to defeat, the creditors of the mortgagor. The Courts below have further held that the fraudulent purpose was, in fact, accomplished. The Courts have, however, disagreed upon the question whether, upon these facts, the plaintiffs were entitled to relief. The Trial Court held that as the mortgage was fictitious, no title had passed to the plaintiffs, who could not consequently claim a declaration of title and recovery of possession. The Subordinate Judge, on the other hand has held that as the fraudulent purpose had been accomplished the mortgage must be deemed, operative and unimpeachable between grantor and grantee and the plaintiffs; were consequently entitled to recover possession. The second defendant, the tenant, alone has appealed against this decree. The fifth defendant, who holds the superior interest, was joined as a respondent to the appeal and has prayed; for an order that, she might, if necessary, be transferred to the category of appellants. There can be no question that the second defendant is competent to maintain the appeal. He is a transferee of the tenancy, and while he has been accepted as tenant by the fifth defendant the plaintiffs have questioned the legality of his purchase on the allegation that the tenancy is non-transferable. The second defendant; has, consequently, a substantial interest in the determination of the question whether the superior interest has vested in the plaintiffs or is still held by the fifth defendant.

2. The history of the development of the Daw of Fraudulent Conveyances in Indian Courts was reviewed in Jadu Nath Poddar v. Ruplal Poddar 33 C. 967 : 10 C.W.N. 650 14 C.L.J. 22. It was ruled in that case that, if the purpose for which the assignment is made, is not carried into execution, and nothing is done under it, the mere intention to effect an illegal object does not deprive the assignor of his right to recover the property back from the assignee who has given no consideration for it. This view was approved by the Judicial Committee in Petherpermal Chetty v. Muniandy Servai 35 C. 551 : 10 Bom. L.R. 590 : 12 C.W.N. 562 : 5 A.L.J. 290 : 7 C.L.J. 528 : 14 Bur. L.R. 108 : 18 M.L.J. 277 : 35 I.A. 98 : 4 M.L.T. 12 : 4 L.B.R. 266 (P.C.). The Indian Trusts Act, likewise, enacts in Section 84 that where the owner of property transfers it to another for an illegal purpose, and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect' of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee first hold the property for the benefit of the transferor. This is a modification of the stringent rule enunciated in the earliest cases, namely, that a person is not entitled to ask a Court of Justice to afford him relief from the consequences of his own misconduct. The later cases enunciate the more lenient rule that the real nature of the transaction should guide the Court in determining the real rights of the parties. Thus has been slowly evolved the modern rule that, although where the intended fraud has been carried into effect, the Court will not allow the true owner to resume the individuality, which he has once cast off in order to defraud others, yet, if he has not defrauded any one, the Court will not punish his intention by giving his estate away to another whose retention of it is an act of gross fraud; Cf. Taylor v. Bowers (1876) 1 Q.B. 291 : 46 L.J. Q.B. 39 : 34 L.T. 938 : 24 W.R. 499.

3. We have next to consider the class or cases where the fraudulent purpose has in fact been accomplished. In such cases, it is well settled that the Courts will not aid a fraudulent grantor to reclaim, or recover from his transferee, property transferred in fraud of creditors, or its proceeds. The object of the rule is not to protect the fraudulent grantee, but to protect society, and this purpose cannot be achieved without allowing the grantee to retain his ill-gotten gains. The seasons for the rule have been expressed in a variety of ways: (1) considerations of public policy as well as the expressed provisions of the Statute; of Frauds forbid relief against a transaction of this nature; (2) the Courts refuse to interfere, hot because they approve the reprehensible conduct of the confederate but because they will not aid the other party in an illegal undertaking; (3) the law will not permit a partier to deliberately put his property out of his control for a fraudulent purpose and then, through the intervention of the Courts, regain the same after his fraudulent purpose has been accomplished; (4) where both parties are equally culpable, the law will leave the parties where it finds them, and not engage itself to determine the rights of the matter as between them; (5) when a suitor applies for equitable relief, he must come into Court with clean hands, with respect to the matters concerning which he asks relief; (6) he who doth fraud may not borrow the hands of the Chancellor to draw equity from a fountain his hand hath polluted; (7) when property has been fraudulently conveyed, the grantor, his heirs and assigns are afterwards estopped to set up the fraud as a foundation for an action for the recovery of the property. We have stated the leading reasons usually assigned in support of the rule enforced when recovery is claimed by the fraudulent grantor, in order to enable us to determine. What rule should be enforced when a recovery is sought by the fraudulent grantee. Upon that question, there has been divergence of judicial opinion, as is indicated by the decisions in Montefiori v. Montefiori (1762) 1 Black. W. 363 : 96 E.R. 203 and Holman v. Johnson (1775) 1 Cowp. 341 at p. 343 : 98 E.R. 1120. In Montefiori v. Montefiori (1762) 1 Black. W. 363 : 96 E.R. 203, Lord Mansfield, C.J., when invited to decide whether a note without consideration given fraudulently to carry on a marriage treaty, shall be good against the drawer, observed that, no man shall set up his own iniquity as a defence any more than as a cause pf action.

4. On the other hand, in Holman v. Johnson (1775) 1 Cowp. 341 at p. 343 : 98 E.R. 1120, Iyord Mansfield, C.J., observed as follows:

The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed but it is founded in general principles of policy, which, the defendant. has the advantage of, contrary to the rear justice, as between him and the plaintiff, by accident, if 1 may so say. The principle of public policy is this ex dolo malo non oritur actio. No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or, the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides and the defendant was to bring his action against the plaintiff the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis.

5. This radical divergence of opinion is reflected in other judicial pronouncements. In. Babaji v. Krishna 18 B. 372 : 9 Ind. Dec. (N.S.) 231, Sir Charles Sargent, C.J., remarked that in Chenvirappa v. Puttappa 11 B. 708 : 12 Ind. Jur. 102 : 6 Ind. Dec.(N.S.) 466, no authority of a Court of Equity was cited which questions the right, of a fraudulent grantor to plead such a defence, and he ruled that the defendant should be heard. This decision was followed by Banerjee and Pargiter, JJ., in Preoa Nath v. Kazi Mahomed Shazid 8 C.W.N. 620, when they held that in a suit for recovery of land, the defendant is not debarred from pleading that a transaction is benami, by reason of his having previously successfully set up. the benami transaction to defraud creditors; it was competent for him to show the real nature of the transaction in order to defend his position and defeat the claim of the benamidar. It is different where, as in Banka Behary v. Raj Kumar Dass 27 C. 231 : 4 C.W.N. 289 l 14 Ind. Dec. (N.S.) 153, the real owner who has successfully set up the benami transaction to defeat or defraud his creditors, himself asks for relief as plaintiff, on the allegation that the transfer relied upon by the, defendant is a benami transaction. The Court will, in such a case, refuse relief to the party who sets up his own fraud, and will leave matters where they are. But that principle does not hold good where the defendant in possession seeks to show the real nature of a transaction to defend that possession. This view is identical with that adopted by Benson, J., in Yaramati Krishnayya v. Chundru Papayya 20 M. 326 : 7 Ind. Dec. (N.S.) 270, namely, that if a benamidar, who has used a fraudulent transfer in his name, to defeat an execution levied by his ostensible transferor, were to seek the assistance of the Court to obtain possession from the latter, the Court might well allow the transferor to plead the real facts, even though the plea involved a declaration by the defendant of his own turpitude. This opinion, subsequently approved by Farran, C.J., in Honapa v. Narsapa 23 B. 406 : 12 Ind. Dec. (N.S.) 270, dissenting from Par am Singh v. Lalji Mal I.A. 403 : 1 Ind. Dec. (N.S.) 319, was fortified by reference to the dictum of Parker, J., in Venkatramanna v. Viramma 10 M. 17 : 11 Ind. Jur. 18 : 3 Ind. Dec. (N.S.) 762, to the effect that when a deed is made for an illegal or immoral purpose, a defendant against whom it is sought to be enforced may--not for his own sake, but oh grounds of public policy--show the turpitude of both himself and the plaintiff. A similar view was adopted in Janardan v. Paikanlala 7 C.P.L.R. 50 and Maniram v. Ganesh 4 Ind. Cas. 233 : 5 N.L.R. 146.

6. The respondents have, however, relied strongly upon the decision of Sir Lawrence Jenkins, C.J., in Sidlingappa v. Hirasa 31 B. 405 at p. 410 : 9 Bom. L.R. 542, where it was ruled that the defendant would not be permitted to invoke the aid of the Courts to enable him to escape from the consequences of a fraudulent sale-deed, which ostensibly created a valid title in the plaintiff. But we must observe that the authority of the case principally relied upon by Jenkins, C.J., namely, Doe d. Roberts v. Roberts. (1819) 2 B. & Ald. 367 : 20 R.R. 477 : 106 E.R. 401, must be deemed to have been considerably weakened by Prole v. Wiggins (1836) 3 Scott. 601 : 3 Bing. N.C. 230 : 43 R.R. 621 : 2 Hodges. 204 : 6 L.J. (N.S.) C.P. 2 : 132 E.R. 398, where Tindal, C.J. permitted the defendant, who was sued for debt on a bond, to plead that the bond was given, to defeat the provisions of a certain Statute, and distinguished the earlier case: on the ground, that the defence therein set up was, inconsistent with the deed. See Gascoigne v. Gascoigne (1918) 1 K.B. 223 : 223 : 87 L.J. K.B. 333 : 118 L.T. 347 : 34 T.L.R. 168. The view, that the illegality of a contract may be set up by way of defence to an action on the contract, even if it does; not appear on the face of the contract, "is" supported by high authority; Cork and Yonghal Ry., In re (1869) 4 Ch. 748 : 39 L.J. Ch. 277 : 21 L.T. 735 : 18 W.R. 26, Jones v. Merionethshire Permanent Benefit Building Society (1869) 1 Ch. 173 : 61 L.J. Ch. 138 : 65 L.T. 685 : 40 W.R. 273 : 17 Cox. C.C. 389, It is equally clear that, when the object of the contract is illegal, the whole transaction is tainted with illegality; no right of action exists in respect of anything arising out of it, and it is the duty pf the Judge to take the objection that the contract is illegal and void; Montefiore v. Monday Motor Components Co. (1918) 2 K.B. 241 : 87 L.J.K.B. 907 : 11 L.T. 340 : 62 S.J. 185 : 34 T.L.R. 463, Scott v. Brown (1892) 2 Q.B. 724 at p. 728 : 61 L.J.Q.B. 738 : 4 R. 42 : 67 L.T. 782 : 41 W.R. 166 : 57 J.P. 213, Robinson's Settlement, In re Gant v. Hobbs (1912) 1 Ch. 717 at p. 725 : 81 L.J. Ch. 393 : 106 L.T.R. 298, North-Western Salt Co. v. Electrolytic Alkali Co. (1914) (sic) : 83 L.J. K.B. 530 : 110 L.T. 852 : 58 S.J. (sic) : 30 T.L.R. 313.

7. One of the decisions mentioned in Sidlingappa v. Hirasa 31 B. 405 at p. 410 : 9 Bom. L.R. 542, is that of Brakenbury v. Brackenbury (1820) 2 J. & W. 391 : 22 R.R. 180 : 37 E.R. 677. There, a conveyance of land had been made, as in Doe d. Roberts v. Roberts (1819) 2 B. & Ald. 367 : 20 R.R. 477 : 106 E.R. 401, to give a fictitious qualification to kill game, and this conveyance--which was in fraud of the policy of the then law requiring that a mans in order to sport, should have a qualification in landed property--had been lent by the proper owner of the land to the ostensible transferee, to enable to the latter to commit a fraud upon a third person. The transferee was about to sue in ejectment to obtain possession of the land, when the proper owner filed a bill in Equity for an injunction to restrain the action and delivery of the deed. Lord Eldon held that a Court of Equity shoukl grant relief to neither party, and the injunction asked for was consequently refused. This rather favours the view that the plaintiff, whether he be the grantor or the grantee, should not be assisted by the Court; see Cecil v. Butcher (1821) 2 J. & W. 565 : 22 R.R. 213 : 37 E.R. 744.

8. The strictness of the rule of estoppel by deed has been much relaxed in. recent times, and it has been maintained that, where both parties to an indenture either know or had the means of knowing that it is executed for an immoral purpose or in contravention of a Statute, or of public policy in general, neither will be estopped from proving facts which will render the instrument void ah initio, for, although a party will thus in certain cases be enabled to take advantage of his own wrong, yet this evil is trifling in comparison with the ilagrant evasion of the law that results from an opposite rule.

9. It may further be observed that in Sidlingappa v. Hirasa 31 B. 405 at p. 410 : 9 Bom. L.R. 542, reliance was placed upon the decision of the liengal Sadar Court in Abhoya Charan v. Trilochan (1859) Beng. S.D.A. 1639. As pointed out in Jadu Nath Poddar v. Rup Lal Poddar 33 C. 967 : 10 C.W.N. 650 : 4 C.L.J. 22, this case was followed in Kaleenath v. Doyal Kristo Deb 13 W.R. 87, though with considerable hesitation by Sir Charles Hobhouse, J., and the latter case was expressly dissented from by Sir Richard Couch, C.J., in Sreemutty Debia Chowdhrain v. Bimola Soonduree Debia 21 W.R. 422 at p. 423, where the decisions of the Judicial Committee in Ram Surun Singh v. Pran Peary 13 M.I.A. 551 : 15 W.R. P.C. 14 : 2 Suth. P.C.J. 386 : 2 Sar. P.C.J. 620 : 20 E.R. 656, and Oodey Koowur v. Ladoo 13 M.I.A. 585 : 15 (sic) 16 : 6 B.L.R. 283 : 2 Suth. P.C.J. 386 : (sic) C.J. 628 : 20 E.R. 669. were applied. We are consequently unable to follow the decision in Sidlingappa v. Hirasa 31 B. 405 at p. 410 : 9 Bom. L.R. 542, or the later decision, substantially to the same effect, in Nahanna Pachhasaheb v. Sabinibibi 12 Ind. Cas. 583 : 37 B. 217 : 13 Bom. L.R. 1011, which also was based on the authority of Doe d. Roberts v. Roberts (1830) 4 Peters. 184 : 7 Law. Ed. 825. On the other hand, the cases of Preo Nath Koer v. Kazi Mahomed Shazid 8 C.W.N. 620 and Babaji v. Krishna 18 B. 372 : 9 Ind. Dec. (N.S.) 756, appear to us to lay down the correct rule on the subject.

10. The following passage from. Story may be usefully recalled here. (Equity, Jurisprudence, Volume I, Section 421 and Note, English Edition by. Randall 1920, Section 298).

In general where parties are concerned in illegal agreements or other transactions, whether they are mala; prohibits or mala in se. Courts of Equity, following the rule of law as to participators m a common crime will not interpose to grant any relief acting upon the known maxim--In pari delicto potior es conditio defendentis et possidentis. The old cases often gave relief, both at law and in equity, where the party would otherwise derive an advantage from his iniquity. "But the modern doctrine has adopted a more severely just, and probably politic and moral rule, which, is, to leave the parties, where it finds them, giving no relief and no countenance to claims of this sort.

11. The view we take accords with, that adopted in Nand Lal v. Jetku Mal 33 Ind. Cas. 255 : 21 P.R. 1916 : 197 P.W.R. 1915, where Shadi Lal, J., pointed out that the balance, of authority in such cases is in favour of permitting the defendant to set up the true. transaction the maxim nemo attegans suam turpitudinem audiendus est. gives way, to the maxim in pari delicto potior est conditio. possidentis.

12. We may now usefully recall the words of Baldwin, J., in delivering the opinion of the Supreme Court of the United States in Bartle v. Nutt, Administrator of Coleman (1830) 4 Peters. 184 : 7 Law. Ed. 825:

The law leaves the parties to such a contract as it found them. If either has sustained a loss by the bad faith of a particeps criminis it is but a just infliction for pre-meditated and deepy practised fraud which, when detected, deprives him of anticipated profits, or subjects him to unexpected losses. He must not expect that a judicial tribunal will degrade itself by an exertion, of its powers, by shifting the loss from the one to the other, or to equalize the benefits or but then which may have resulted by the violation of every principle of morals and of laws.

Or, as Chancellor Walworth states it:

Whetever two or more persons are engaged in a fraudulent transaction to injure another, neither law nor equity will interfere to relieve either of those persons as against the other, from, the consequences of their own misconduct.

11. Bolt v. Rogers (1832) 3 Paige. 157; see also Randall v. Howard (1862) 2 Black. 585 : 17 Law. Ed. 646, Wheeler v. Sale (1863) 1 Wallace. 518 : 17 Law. Ed. 646, Dent v. Ferguson (1889) 132 U.S. 50 : 33 Law. Ed. 242, Strum v. Boker (1893) 150 U.S. 334 : 37 Law. Ed. 1093.

12. What, then, is the true aspect of the relative situation of the parties A, executes a conveyance of land in favour of B.B. sues A. to recover possession. A. answers and establishes that, as B. is well aware, there was no consideration for the deed, that the transaction was fictitious, and that the conveyance was never intended to pass title. B. retorts, with cynical frankness, that though this be the truth, yet, as he conspired with A. to create the document so as to cheat C, a creditor of A., who might otherwise have pursued the property, his conduct has been so meritorious that he is entitled to invoke the aid of the Court in his endeavour to appropriate what rightfully belongs to A. We are unable to appreciate on what conceivable principle of justice, equity and good conscience, the Court may be thus called upon to promote actively the roguery of B. at the expense of A, merely because B. has helped A. to cheat C. it does not follow that the Court should assist C,. to cheat A. We are clearly of opinion that the plaintiffs in the present case have established no claim whatsoever to the assistance of the Court to enable them to commit a fraud upon the true owner and they must be left to congratulate themselves upon nothing beyond a useless mortgage and the memory of a successful fraud which, has brought them no benefit whatever.

13. The result is, that this appeal is allowed, the decree of the Subordinate Judge set aside and the suit dismissed with costs in all the Courts.