SECTION 23
LEGALITY OF OBJECT AND CONSIDERATION
The consideration or object has been considered to be unlawful by Section 23:
1. It is forbidden by law;
2. It would defeat the provisions of any law;
3. It is fraudulent;
4. It involves or implies injury to the person or property of another;
5. The Court regards it as immoral, or
6. The Court regards it as opposed to public policy.
1. FORBIDDEN BY LAW
When something is forbidden by law, an agreement to do that is unlawful. An agreement to do what has been prohibited by the Indian Penal Code or by some other law cannot be enforced. A contract to pay some money if a crime or a tort is committed is not enforceable. If the contract stipulates indemnifying a person against liability for an intentional wrong like deceit, it is unlawful.
An agreement offending a statute or public policy is void from the beginning and the same cannot become valid even if the parties agree to that effect. Thus, it has been held in
IN UNIVERSAL PLAST LTD. V. SANTOSH KUMAR, A.I. B. 1985 DELHI 383
The Textile Commissioner issued an order under the Essential Commodities Act forbidding transfer of spindles by any person without the prior permission of the Textile Commissioner.
The plaintiff, who owned 4,200 spindles with motors and accessories in Ludhiana agreed to sell the same to the defendant for Rs. 1,02,440, receiving an advance of Rs. 10,000 from the defendant.
In an action by the plaintiff to recover the balance of Rs. 92,440, it was held that the same was not recoverable as the transfer of spindles was illegal. For the same reason it was further held that the buyer could not recover the advance of Rs' 10,000 paid by him.
When Sections 42 and 59 of the Motor Vehicles Act, 1939 clearly debarred all holders of permits, including State Road Transport Corporation, from indulging in unauthorized trafficking in permits, an agreement in contravention of these provisions has been held to be void under Section 23 of the Contract Act, by the Supreme Court
IN BRIJ MOHAN V. M.P.S.R.T. CORPORATION, A.I. R 1987 S.C. 29.
In this case the respondent corporation having a permit to run a bus on a certain route entered into an agreement with the petitioner to allow the petitioner to run his bus as nominee of the said corporation.
It was held that the said agreement being void as violative of the provisions of the Motor Vehicles Act, was not enforceable.
An agreement to fell liquor without a licence, when a licence is required to sell the same, is void. Transfer of business for the sale of liquor to one, who does not have the necessary licence, is in contravention of law, and, is therefore, void.
IN S. L. FERNANDES V. V. M. FERNANDES, A. 1. R. 1981 GOA 18.
the plaintiff was the owner of a business for the sale of liquor and also for running a bar. He had a licence for such a business. He entered into a contract with the defendant whereby he entrusted his business including the running of the bar, to the defendant in exchange for a certain amount of yearly payment.
The plaintiff had transferred the full control over the business to the defendant rather than mere management of the same. It was found that the defendant did not hold any licence for such a business. The plaintiff brought an action to recover the yearly amount promised to be paid by the defendant.
It was held that transferring the business itself to the defendant and allowing him to carry on the trade of sale of liquor without licence was prohibited by law.
The agreement being forbidden by law would contravene Section 23 and therefore the plaintiff could not recover any amount from the defendant.
If the agreement does not satisfy the clear and unequivocal requirement of a State, it is void.
IN RE MAHMOUD AND ISPAHANI, (1921) 2 Κ.Β. 716.
during the war the sale of linseed oil without a licence from the Food Controller had been forbidden.
The plaintiff agreed to sell linseed oil to the defendant, on a false assurance from the defendant that he had such a licence.
Subsequently, when the oil was supplied, the defendant refused to accept the same on the ground that he did not possess the necessary licence.
In an action against the defendant for damages for breach of contract, it was held that he was not liable as there was no valid contract between the parties. Bankes, L.I. observed.
The order is a clear and unequivocal declaration by the Legislature in the public interest that this particular kind of contract shall not be entered into.
IN SUJAN SINGH V. MOHKAM CHAND, A.I.R. 1983 P & H. 180
If the agreement is not forbidden by law, unlawful, or opposed to public policy the same is enforceable.
Such is the position in case of " knock out" agreement in an auction sale.
A and B agreed that they will not outbid each other in an auction sale with the understanding that if A's bid was accepted, he (A) will transfer half of the property in favour of B.
A's bid was accepted and B sued to enforce the agreement.
It was held that the agreement was valid and enforceable as the same could not be said to be against public policy
It was observed that the combination was not rendered illegal merely because the Government is a party or the Government is likely to suffer loss in revenue.
ADMINISTRATOR, HINDUSTAN CABLES, ETC. SOCIETY LTD. V. JITENDRA KUMAR DAS CHAUDHURY
The appellant Co-operative Society entered into an agreement with one of its members, the respondent, according to which the respondent was to act as an agent of the Life Insurance corporation, and then he was to retain 50% commission himself and give the other 50% of his commission, received from the Life Insurance Corporation, to the Co-operative Society.
It was held that sharing of the commission was prohibited by the Insurance Act, any agreement in contravention of such prohibition was calculated to, and it was void. The claim of the Co-operative Society to recover 50% commission earned by Mr. Chaudhury failed.
If the law prohibits the doing of something, the same cannot be done in a roundabout way. If doing of a thing in a certain manner would defeat the provisions of law, the same is unlawful.
For instance, A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price B has paid.
This agreement is void, as it renders the transaction, in effect,
2. DEFEAT THE PROVISIONS OF ANY LAW
If the object or consideration of an agreement is of such a nature that, if it is permitted, it would defeat the provisions of any law, such an agreement is void. Certain acts may not be expressly forbidden by law, but if they result in entitled circumventing any law, they cannot be encouraged.
IN ABDUL PIROJKHAN NABAB V. HUSSENBI, (1904) 6 BOM. LR. 728; BORDIE N. BORDIE, 1917 P. 271.
The plaintiff and the defendant, who married under the Mahommedan law, agreed before marriage that the defendant (wife) would be allowed to live with her parents after the marriage. The wife went to her parents and refused to come back to her husband (plaintiff). He filed a suit for the restitution of conjugal rights. Her defence was that she was permitted by the agreement made before marriage, to live apart, and also that the husband had not paid her dower amounting to Rs. 1,000. It was held that the agreement before marriage permitting the wife to live separately was void in law. The plaintiff was granted the decree for the restitution of conjugal rights conditional upon payment by him of the stipulated dower of Rs. 1,000.
Similarly, an agreement for future separation between a Mohammedon husband and wife is also void because the same is opposed to public policy
BAI FATMA V. ALI MAHOMED [I.L.R] (1912) BOM. 280
The defendant, who wanted to have a second wife, executed a document in favour of the plaintiff, i.e., his first wife contemplating future separation and also payment of maintenance allowance to the plaintiff. The document was as under:
You are my married wife. And now as I mean to marry a second wife, I give you this agreement in writing as follows:
We are to live together as long as I and you (i.e.) all agree. However, if disagreement takes place between us, I am to go on paying you from month to month at the rate of Rs. 8, namely, Rupees eight per month for (your) maintenance. Even after the execution of the document they lived together for some time and then they separated. The plaintiff then brought an action to recover the arrears of the maintenance allowance as promised by the defendant in the above stated document. It was held that such an agreement between a Mahomedan husband and wife to live separately in future because the husband wanted to marry again, was opposed to public policy under Section 23, Indian Contract Act, and therefore void, The plaintiff was not entitled to get any compensation stipulated in the agreement.
SUKHA V. NINNI A.I.R. 1966 RAJ. 163
Although according to Mahomedan law a man, who has begotten an illegitimate child, does not have a duty to maintain him but an agreement to maintain an illegitimate child is not unlawful and therefore not void.
When a transaction is not per se illegal, for example, giving loan for the marriage of the borrower's daughter, the lawfulness or otherwise of the particular transaction would depend on the lender's knowledge of that fact In such cases, presence or absence of the knowledge is an important ingredient in reaching a finding whether the transaction is one which is opposed to the provisions of Section 23 of the Indian Contract Act.
PUNNKOTIAH V. KALLAPALLI KOLILAMBA A.I.R 1967 A.P.83
Thus, if a person has lent some money for the purpose of celebrating the borrower's daughter's marriage, without the knowledge that and the marriage was being celebrated in contravention of the provisions of the Child Marriage Restraint Act, he cannot be denied the recovery of the loan.
MULLALIEU V. HODGSON (1851) 16 Q.B. 689
If a debtor has made composition with his creditors, agreeing to pay them 1/3rd of the sum due, but makes a secret agreement with the plaintiff agreeing to pay him in full, the secret agreeing with one creditor is a fraud in the other creditor, who agree to the composition in the assumption that the other creditor will also forego their claims accordingly. Such an agreement between the debtor and the particular creditor is not enforceable
3. FRAUDULENT PURPOSE
ILLUSTRATION (G) TO SECTION 23.
If the consideration or object of an agreement is to commit fraud, the agreement is void.
For example, A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired by them by fraud, The agreement is void, as its object is unlawful.
Similarly, for example, A, being agent for a land proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is vord, as it Implies a fraud, by concealment by A, on his principal.
4. AGREEMENT INJURIOUS TO THE PERSON OR PROPERTY OF ANOTHER
If the consideration or the object of an agreement is to cause an injury to the person or property of another, the agreement is unlawful and therefore void. Injury here means harm which is unlawful, for example, an agreement to commit fraud, or a tort. If the borrower of money is made to execute a bond requiring him to do manual labour until repayment, and imposes a heavy penalty on default in the form of exorbitant rate of interest, agreement contained in the bond virtually amounts to slavery, and, therefore, such an agreement is opposed to public policy and thus void.
Similarly, if the buyer of some property is aware that the seller does not have a good title, and he persuades the seller to transfer the property with the object of giving trouble to the true owner, an action by the buyer against the seller to claim indemnity from him for the loss to the buyer in the litigation of that property is not maintainable. In this case, "The validity of the contract itself is questionable as opposed to Section 23 of the Contract Act as the object of the agreement itself is fraudulent involving injury to the person or property of another.
In the circumstances, it has to be held that the plaintiff cannot recover the expenses incurred by him in the prior litigation.
5. IMMORAL
If the consideration or object of an agreement is regarded by the Court to be immoral or opposed to public policy, the agreement is unlawful and the same has also been declared void by Section 23.
ILLUSTRATIONS
1. A, who is B's mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.
2. A agrees to let her daughter for hire to 8 for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code.
From the illustrations mentioned above, it appears that the intention of the framers of the Act was not necessarily to confine the scope of immorality to a mere sexual immorality.
Immorality depends on the norms accepted by the society at a particular point of time.
Generally, the concept of immorality has been given a restricted meaning and it has been confined only to sexual immorality.
BAI VUJI V. NANSA NAGAR (1885) 10 BOM.152.
The plaintiff advanced loan to the defendant, married woman, to enable her to obtain divorce against her husband and then marry the plaintiff was not entitled to recover the loan so advanced
CHOGA LAL V. PIYARI, (1909) 31 ALL 58
A landlord letting his house, knowing that the same was to be used for the purpose of running a brothel, cannot recover the rent of the same.
RAJENDRA NATH DASS V. ABDUL HAKIM KHAN, A.I.R 1918 CAL. 390
Advancing loan to a person for going to brothels for prostitution is unlawful, and the loan thus given cannot be recovered.
BHOLI BAKSH V. GULIA, (1877) PUNJ. REC. NO 64.
Advancing loan to a prostitute to enable her to carry on her trade is unlawful, and the money so lent cannot be recovered.
ALLA BAKSH V. CHUNIA (1877) PUNJ. REC. NO 26.
Lending to Prostitute ornaments to attract male customers is unlawful, and the ornaments so lent cannot be recovered.
PAST AND FUTURE COHABITATION
If the object or consideration for an agreement is future illicit cohabitation between a man and a woman, the agreement is always unlawful. In such a case it does not make any difference whether such an illegal cohabitation would amount to the offence of adultery or not.
Therefore, if there is a promise to pay a woman for future cohabitation, this would be an agreement which the Court is bound to regard as immoral, or opposed to public policy. If a man, A, advances loan to a married woman B, so that she can obtain divorce and then A and B can marry, the agreement is unlawful and A cannot recover back the loan from B.
If consideration for a promise is adulterous living with a woman in the past, the consideration is not only immoral, but it is illegal also because in India adultery is an offence under Section 497 of the Indian Penal Code.
If adultery, past or future, is the consideration or an indivisible part of the consideration fis an agreement entered into in India, this would make it not merely an immoral but an illegal agreement, and the contract would be void.
NARAYANI V. PYARE MOHAN A.I.R 1972
Narayani, a married woman, lived as mistress with one Gopal Lal for 10 to 11 years before the latter's death. Gopal Lal made a gift of a house to Narayani. After Gopal's death, his sister's son, Pyare Mohan, had also started living in that house.
He refuses to vacate the said house (kotha) and put his claim to the same. His contention was that the gift to Narayani was void as the object of the same was to pay her for past cohabitation, which was immoral.
Narayani was a married woman, her living with Gopal Lal was not considered to be adulterous because her husband's consent to her living that way was possibly there.
The object of the gift was not considered unlawful because the same had been done for two things, Narayani's cohabitation with Gopal Lal, and also her services during her stay with him.
It was, therefore, held that the gift of the Kotha to her was valid
Against this decision of the Single Judge, Pyare Mohan made a Special Appeal to the Division Bench of the Rajasthan High Court and dismissed the appeal.
The motive in this case was to compensate Narayani for past cohabitation as well as for further services provided by her. Since Section 23 did not apply to the case,
If the past consideration is cohabitation which is in adulterous and a part of the consideration rendering of some household services by the lady.
A gift to her for such living as well as services has been held to be a valid one by the Bajasthan High Court in Narayani v. Pyare Mohan.
In some of the cases although a promise to pay for future illicit cohabitation has been held to be unlawful, but a promise to pay for the past cohabitation has been held to be valid.
the consensus appears to be in favour of the proposition that if illicit cohabitation was unlawful at one time, it cannot become innocent merely because it is past consideration.
There can be no difference whether A says to B "I will give you Rs. 100 a month if you live with me for a year" or "I will give you Rs. 1,200 because you have lived with me for a year.
The consideration for past cohabitation is unlawful as being immoral or opposed to public policy.
6. OPPOSED TO PUBLIC POLICY
If the court regards that the consideration or object of an agreement as opposed to public policy, the agreement is void.
Public policy is not capable of any precise definition. Public policy means the policy of the law at a stated time. An act which is injurious to the interest of society is against public policy.
For example, Christianity being part of English law, hiring of a hall for a meeting which would promote atheism, was regarded as opposed to public policy in 1857, but such a purpose was not regarded as opposed to public policy in 1917.
On one hand, a person's right of contractual freedom should be maintained. On the other hand, if the contract is against public policy, the law must not allow that to be enforced. The concept of freedom of contract has been considered to be of great significance and, therefore, it would be unjust if the courts are given freedom to interfere with contracts on their own notions on public policy.
The court's power to recognize new heads of public policy has this been doubted.
RICHARDSON V. MELLISH (1824) 2BING, 229,AT P. 252
The opinion of Burrough, J. The public policy "is an unruly horse, and when you get astride it you never know where it will carry you."
The courts do play a great role in interpreting whether the agreement is in consonance with the recognized public policy or not.
The task of a judge has considered to be "to expound and not to expond "the law. [FERDER V. JOHN MIDMAY (1938) A.C 1, AT P. 23]
The decision of the court would depend upon the recognized notions of interest of the community at a particular time. Nations could vary from country to country and time to time.
For example, Christianity being part of English law, hiring of a hall for a meeting which would promote atheism, was regarded as opposed to public policy in 1857, but such a purpose was not regarded as opposed to public policy in 1917.
With the changing times the public policy demanded due protection to the weaker party, if the parties have an unequal bargaining power. The courts evolved the doctrine of fundamental breach of contract to give effect to the changing need of the society.
The legislature has also imposed restrictions on the freedom of contract by disallowing exclusion of implied conditions and warranties in a contract of sale, or exclusion of liability in a contract of sale, or a contract in general.
IN RATTAN CHAND V. ASKAR, A.I.1991 S.C.C 67
Some judges appear to have thought it (the unruly horse of public policy) more like a tiger and refused to mount it at all, perhaps because they feared the fate of the young lady of Riga.
Others have regarded it like Balaam's ass which would carry its rider nowhere. But none, at any rate at the present day, has looked upon it as a Pegasus that might soar beyond the momentary needs of the community.
IN CENTRAL INLAND WATER TRANSPORT CORPN. LTD. V. BROJO NATH GANGULY, A.I.R. 1986 S.C. 1571.
The decision of the Supreme Court in above cases explains the working of the doctrine of public policy. the respondents, Brojonath & his friend had been working in Rever steam Navigation Company. The service of the two respondents were also taken over by the appellant corporation.
The letters of appointment to the two respondents stated that the service rules and regulations including the conduct rules framed by the corporation.
According to one of the rules, viz Rule 9 clause (i), Service Discipline and Appeal Rule of the corporation the services of a permanent employee could be terminated by the corporation giving a 3 months' notice or paying a salary for the notice period.
The services of two respondents were terminated by the corporation by a notice under the above mentioned Rule 9 Clause along with the notice was sent a cheque for the salary of 3 months to each of these employees in lieu of the notice period.
It was held that the part of the clause, which empowered the corporation to dispense with the service of a permanent employee was injurious to public interest for it tends create sense of insecurity in the minds of those to whom it applies and is unconscionable opposed to public policy, and thus void under sec. 23 of the ICA.
It was also held that the part of the clause which empowered employee to resign from service was not void.
Some other agreements which are opposed to public policy, like
1. An agreement in restraint of marriage Sec. 26.
2. An agreement in restraint of trade Sec.27.
3. An agreement ousts the jurisdiction of court Sec. 28.
4. A wagering agreement Sec. 30. Etc.
The following agreements have been held to be opposed to public policy:
1. Agreement to stifle prosecution;
2. Agreement of maintenance and champerty:
3. Trading agreement with an enemy;
4. A wagering agreement Sec. 30. Etc.
5. Agreement tending to injure the public service.
1. AGREEMENT TO STIFLE PROSECUTION
An agreement to stifle prosecution has been regarded as opposed to public policy. The purpose of criminal law is to punish a guilty person, and a compromise with a view to save a guilty person from liability would frustrate this object. Some minor offences have been recognized as compoundable offences, which permit of a compromise. In all other cases (i.e., non-compoundable offences)
any compromise to frustrate an action against a criminal, would be deemed to be unlawful. By accepting some consideration to make a compromise in a criminal case, one is deemed to have accepted bribe, and this is against the well-recognized principle of law, "that you shall not make a trade of a felony.
Explaining the basis of such a rule, the Supreme Court has observed:
OUSEPH POULO V. CATHOLIC UNION BANK A.I.R 1965 SC
Gajendra Gadkar, C.J. "It is well settled that agreements which are made for stifling prosecution are opposed to public policy and as such, they cannot be enforced.
some goods had been pledged with the respondent bank as a security for a loan. On an inspection by the Head Office of the bank, it was found that there was considerable shortage of goods in the godown. It was thought that either the goods had been fraudulently removed after the pledge, or an adequate quantity had not been actually pledged, in collusion with the bank officials of the branch in question.
Soon after the deficiency was found, the appellants offered to make good the deficiency in the value of the goods pledged by offering some further security. Then, a complaint was lodged with the police about the said deficiency of the goods in the godown. As promised by the appellants before the filing of the criminal complaint, they now executed two hypothecation deeds in favour of the bank.
Then the criminal complaint was withdrawn. Subsequently, the appellants sought the cancellation of the hypothecation deeds on the ground that the same had been executed to stifle criminal prosecution.
It was held that the hypothecation was valid because the same had been contemplated prior to the criminal complaint though executed thereafter, and as such the withdrawal of the complaint was not the consideration for the hypothecation.
If A has a choice to bring a civil or a criminal action against B, and he procures a promissory note from B instead in satisfaction of his claim and drops the idea of bringing any kind of action against B, there is no stifling of the prosecution and the pronote is valid.
P. SHIVARAM V. T.A. JOHNΝ Α.Ι.R 1975
A, the owner of a store discovered that one of his employees after stealing certain goods from the store, had sold them to B.
A could bring civil or criminal proceedings against 8 to recover the value of the goods.
Before the same was done, B voluntarily executed a pronote in favour of A, for the money value of the articles purchased.
In a suit brought on the pronote, it was held that there was nothing illegal or opposed to public policy in A's accepting the pronote because it could not be said that the consideration for the pronote was to stifle a prosecution.
It was observed that a distinction should be drawn between the motive for an agreement and the consideration for it.
In this case, the motive for the pronote may have been to avoid a legal proceeding, but that was the consideration for the pronote
AGREEMENT OF MAINTENANCE AND CHAMPERTY
MAINTENANCE
Maintenance consists in aiding a party in civil proceedings by providing financial or other assistance without lawful justification.
When a person intermeddles in the litigation between others by providing assistance to one of the parties, and he has no interest of his own in the litigation, such intermeddling is unlawful.
Maintenance has been considered to be both a crime and a tort. "Maintenance is strictly prohibited by the Common Law as being a manifest tendency to oppression, by encouraging and assisting persons to persist in suits which, perhaps, they would not venture to go on in upon their own bottoms.
CHAMPERTY
Champerty is a kind of maintenance in which the person assisting in the proceedings is to receive a share in the gain made in the proceedings maintained by him.
HUTLEY V. HUTLEY, (1873) L.R. 8 Q.B. 112, PER BLACKBURN, J.
It is "a bargain whereby the one party is to assist the other in recovering property, and is to share in the proceeds of the action."
in England, the offences of maintenance and champerty were considered to be obsolete, and the same have been abolished by the Criminal Law Act, 1967.
But the abolition of torts and offences of maintenance and champerty, shall not affect the law according to which such a contract is to be treated as contrary to public policy or otherwise illegal.
Exception: When the assistance is without justification, it is unlawful. If the person assisting and the person assisted have a common interest in the proceeding maintained, it is not unlawful.
Common interest is held to be there in litigation in following cases:
1. When in litigation a master assists his servant, or
2. A servant hi master, or
3. Help is given to an heir, or a near relative, ot to a poor out of charity, to maintain a right which he might otherwise lose.
4. Assistance in a litigation by association like Trade Unions, or insurance companies, is justified and is no maintenance.
APPLICATION IN INDIA
Because of peculiar Indian condition, English law of maintenance and champerty has no application in India.
RAM COOMAR COONDOO V. CHUNDER CANTO MOOKHERJEE, (1876) LR. 4 LA. 23
A fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy.
Indeed, cases may be easily supported in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.
In an agreement of champerty, the courts have to see whether the financier is trying to take undue advantage of helplessness of the other party, or
the agreement is a fair one taking into account the amount of financial assistance, and proposed gain to the financier out of the litigation.
If an agreement is "found to be extortionate and unconscionable so as to be inequitable against the party
RAM SAROOP V. COURT OF WARDS A.I.R 1940P.C.19
If the agreement stipulates that the financier is to bear all the expenses of litigation, and in return he is to get 3 annna(3/16) share of the property recovered if the suit terminates at the High Court level, and 4 anna (4/16) share if the case goes up to the Privy Council, such an agreement has been held to be valid.
EXECUTIVE OFFICER FOR NAVANEETHA KRISHNASWAMI DEVASTHANAM V. RAKMANI & CO. 1955 M.L.J 399
The financier undertook not only to finance the litigation but also looked after the same including engaging lawyers and securing records, etc.
In return, the financiers beyond sharing the fruits of the decree were to get a bonus of five lakhs of rupees.
The financiers actually spent about 8 lakhs of rupees. It was held that under these circumstances, payment of bonus of 5 lakhs of rupees could not be considered to be unconscionable or extortionate.
NUTHAKI VENKATASWAMI V. KATTA NAGI REDDY A.I.R 1962 Α.Ρ.457
The defendant requested the plaintiff for advancing him necessary funds for prosecuting an appeal with regard to dispute concerning some property.
In return for the financial help in the litigation by the plaintiff, the defendant made the promise in the following terms "Soon after the litigation (appeal proceedings) is decided completely in my favour, I will give you the 3/4th of the decree scheduled properties, which are due and take the remaining 1/4th share.
Regarding the 3/4th share of property, which is to be given to you. I will execute a deed of sale as per your request, at your expense." After the litigation had been decided in favour of the defendant, he refused to execute the deed for the transfer of 3/4th of property in favour of the plaintiff.
The plaintiff brought an action for specific performance of the agreement by the execution of a deed of conveyance.
It was observed that the quantum of share that the financier should get in the fruits of the decree is of vital importance in judging fairness or otherwise of the financing agreement.
It was held that in this case agreement to transfer 3/4th of the property had made the transaction unconscionable, and it was not a fit case for passing a decree for the specific performance of the contract.
The court, however, ordered that the plaintiffs should get back the estimated amount of Rs. 3,395 spent by them plus a sum of Rs. 2,000 towards interest and damages.