Waman Shriniwas Kini vs Ratilal Bhagwandas and Co

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 674 of 1957

Decision Date: 16 February 1959

Coram: J.L. Kapur, Syed Jaffer Imam, S.K. Das

The case titled Waman Shriniwas Kini versus Ratilal Bhagwandas & Co was decided on 16 February 1959. The judgment was delivered by a Bench consisting of Justice J.L. Kapur, Justice Syed Jaffer Imam and Justice S.K. Das. The official citation of the decision is reported in 1959 AIR 689 and 1959 SCR Supl. (2) 217, and it has been subsequently referred to in several other reports, including R 1973 SC 921, D 1985 SC 507, RF 1986 SC 1194, RF 1987 SC 117, RF 1991 SC 744 and others. The dispute arose under the Bombay Hotel and Lodging Houses Rates Control Act, 1947 (Bombay 57 of 1947), specifically sections 13(1)(e) and 15, and also involved the Indian Contract Act, 1872 (9 of 1872), section 23. Originally the appellant, Waman Shriniwas Kini, occupied a shop in an old building that was later purchased by the respondent, Ratilal Bhagwandas & Co. After the purchase, the appellant vacated the old premises and became a tenant in a new premises belonging to the respondent. While occupying the old building, the appellant had sub‑tenants, and these sub‑tenants moved together with the appellant to the new premises when he took possession. The respondent, in a letter dated 7 June 1948, expressly permitted the appellant to continue keeping sub‑tenants in the new shop, stating: “In the shops in the old chawl which are with you, you have kept sub‑tenants. We are permitting you to keep sub‑tenants in the same manner, in this place also.” On 20 April 1949 the respondent instituted a suit for ejectment against the appellant, alleging among other grounds that section 15 of the Bombay Hotel and Lodging Houses Rates Control Act, 1947 prohibited sub‑letting and that, under section 13(1)(e) of the same Act, the landlord was entitled to evict a tenant for sub‑letting. The appellant raised three principal defences: first, that section 15 was limited to “any other law” and did not apply to contracts between landlord and tenant, and therefore could not bar an agreement allowing sub‑letting; second, that both parties were in pari delicto and the respondent therefore could not obtain relief; and third, that the respondent’s right to sue for ejectment on the ground of sub‑letting was a personal right, which he had waived by permitting the appellant to sub‑let, and consequently he could not rely on section 13(1)(e) to evict the appellant.

The Court held that the “notwithstanding anything contained in any law” clause embedded in section 15 of the Bombay Hotel and Lodging Houses Rates Control Act, 1947 extended to contractual arrangements as well, because contracts fall within the ambit of the law relating to contracts. Accordingly, the respondent was entitled to maintain an ejectment action even though the lease agreement expressly recognised sub‑letting, because the suit was brought not to enforce the lease but to enforce the statutory right of eviction that arose directly from the breach of section 15. The Court further observed that the statutory provision was founded on public policy, and where public policy demands, an equal participant in an illegal transaction may be granted relief through restitution or rescission, though not on the contract itself. Finally, the Court rejected the appellant’s plea of waiver, stating that upholding such a plea would amount to enforcing an illegal agreement, which the statute expressly prohibits. An agreement to waive an illegality is void on grounds of public policy and therefore unenforceable. The judgment was rendered in civil appellate jurisdiction as Civil Appeal No. 674 of 1957, an appeal by special leave from the judgment and decree dated 10 August 1955 of the Bombay High Court in C.R. Application No. 1213 of 1953.

The Court clarified that the plaintiff’s claim was not founded on enforcing the tenancy contract itself but on enforcing the right of eviction that flowed directly from a violation of the provisions of section 15 of the Bombay Hotel and Lodging Rates Control Act, 1947, and that the Act expressly provided a remedy for such a violation. It observed that section 15 is grounded in public policy, and that when public policy demands, even a party who is equally implicated in an illegal arrangement may be granted relief in the form of restitution or rescission, although not by enforcing the illegal contract. The Court further held that the appellant’s argument of waiver could not succeed because giving effect to such a waiver would compel the court to enforce an illegal agreement, thereby contravening the statutory provisions of section 15. Accordingly, an agreement to waive an illegality is void on public‑policy grounds and is unenforceable. The judgment noted that relevant case law had been reviewed. The matter before the Court was a civil appeal, numbered 674 of 1957, filed by special leave against the judgment and decree dated 10 August 1955 of the Bombay High Court in Criminal Revision Application No. 1213 of 1953, which arose from the judgment and decree dated 25 April 1953 of the Assistant Judge, Thana, in Civil Appeal No. 97 of 1952, and from the judgment and decree dated 31 January 1952 of the Court of the Civil Judge, J. D. Kalyan, in Suit No. 153 of 1949. Counsel for the appellant comprised three advocates, while counsel for the respondent comprised three advocates. The judgment was delivered on 16 February 1959 by Justice Kapur. The appeal challenged the High Court of Bombay’s confirmation of the ejectment order originally passed by the Assistant Judge, Thana. In the underlying dispute, the tenant who had been the defendant in the original suit was the appellant, and the landlord who had been the plaintiff was the respondent. The factual background was that the appellant had occupied the premises known as “Fida Ali Villa” in Kalyan for approximately twenty years. The respondent later purchased the building, served notice to the appellant to vacate in order to erect a new structure on the site, and the appellant consented to vacate. Subsequently, the respondent let a portion of the new building, situated at a considerable distance from the original “Fida Ali Villa,” to the appellant. The appellant maintained four sub‑tenants; three of these sub‑tenants also moved into the newly allotted premises, while the fourth, identified as a Bohri, was accommodated by the respondent elsewhere. Although the parties disagreed on the exact date of the new tenancy— the appellant asserted it began on 1 July 1948 and the respondent claimed 1 June 1948— the trial court concluded that the premises had been let on 1 June 1948.

In 1948 the lease terms were set out in a document dated 7 June 1948. This document was a letter written in Marathi by the respondent to the appellant. The letter contained a clause regarding sub‑tenancy which read: “In the shops in the old chawl which are with you you have kept sub‑tenants. We are permitting you to keep sub‑tenants in the same manner, in this place also.” The parties disagreed about the exact translation of that clause. The appellant argued that the Marathi word should be rendered in the plural, “sub‑tenants”, whereas the respondent argued for the singular form. Both sides agreed, however, that the singular‑versus‑plural issue did not affect the main point that the Court was asked to decide.

On 3 January 1949 the respondent sent a notice to the appellant demanding that he vacate the premises because, according to the respondent, the appellant had failed to pay rent and had sub‑let the premises in violation of the lease. On 20 April 1949 the respondent instituted an ejectment suit on the same grounds of non‑payment of rent and unauthorised sub‑letting. The appellant’s defence was that the lease expressly allowed him to sub‑let the premises. The respondent also claimed that the arrears of rent should be deposited with the court.

The trial judge held that the sub‑letting was permissible despite the provisions of section 15 of the Bombay Hotel and Lodging Houses Rates Control Act, 1947 (Bombay Act 57 of 1947). The judge also found that the appellant was not occupying the new premises on the same terms and conditions that had applied to the old premises in “Fida Ali Villa”. Accordingly, the trial court awarded a decree for Rs 445 in respect of rent still due and dismissed the respondent’s ejectment suit.

On appeal, the Assistant Judge at Thana set aside that decree. The appellate judge ruled that section 15 of the Act categorically prohibited sub‑letting and that, under section 13(1)(e) of the Act, the landlord was entitled to evict the tenant for unauthorised sub‑letting. The appellant then sought revision before the High Court of Bombay, which upheld the order of ejectment. By way of special leave, the appellant approached this Court. Counsel for the appellant submitted several arguments: (1) that no new tenancy arose after the Act came into force, so sections 13(1)(e) and 15 should not apply; (2) that the occupants of the premises were not sub‑tenants but merely licensees of the landlord; (3) that no fresh sub‑tenancy had been created; (4) that section 15 was limited to “any other law” and did not govern private contracts between landlord and tenant, and therefore it could not bar an agreement on sub‑letting; (5) that both parties were in pari delicto, which should preclude the respondent from succeeding; and (6) a further ground not previously raised in the lower courts or in the statement of case in this Court, namely that the respondent had waived his right to enforce the prohibition on sub‑tenancy.

In the lower courts, as well as in the appellant’s grounds of appeal and the statement of case filed before this Court, it was submitted that the respondent had voluntarily relinquished his right to enforce the prohibition on sub‑tenancy and that section 13(1)(e) of the Act, which is intended to protect that right, could lawfully be waived by the respondent. The lower tribunals, however, concluded that the lease dated 7 June 1948 created a fresh tenancy rather than continuing the earlier tenancy, and they determined that the individuals occupying the premises as sub‑tenants were tenants of the appellant and not merely licensees of the respondent. No substantial argument was advanced before this Court on those determinations. The earlier tenancy concerned a different building identified as “I Fida Ali Villa,” which terminated when the appellant vacated that property and subsequently executed a new lease concerning the premises that are now the subject of this dispute. Consequently, there was no legal relationship of privity between the respondent and the appellant’s sub‑tenants, and they could not be described as licensees of the respondent. The contentions that the respondent retained any such relationship were found to be without merit and were correctly rejected by the lower courts.

The appellant further argued that section 15 of the Act does not impose a prohibition on a contract of sub‑letting because its non‑obstante clause applies only to “other laws.” The provision, when read in full, states: “Notwithstanding anything contained in any law, it shall not be lawful after the coming into operation of this Act for any tenant to sub‑let the whole or any part of the premises let to him or to assign or transfer in any other manner his interest therein; provided that the State Government may, by notification in the Official Gazette, permit in any area the transfer of interest in premises held under such leases or class of leases to the extent specified in the notification.” This language expressly forbids sub‑letting and makes it unlawful for a tenant to assign or otherwise transfer his interest in the leased premises. The non‑obstante clause therefore renders any sub‑letting unlawful even if another statute, such as section 108 of the Transfer of Property Act, permitted it. The prohibition extends to contracts because all contracts fall within the scope of the Contract Act, and an agreement that contravenes section 15 would be unenforceable as it violates the explicit statutory ban. Moreover, section 23 of the Contract Act precludes a person from relying on a contract whose formation the law itself forbids. Counsel for the appellant contended that the Bombay High Court’s decision in P. D. Aswani v. Kavashah Dinshah Mulla (1) was erroneous and that the correct principle was set out in Cooper v. Shiavax Cambatta (2), a case decided under section 10 of the Bombay Rents, Hotel Rates and Lodging Houses Rates (Control) Act (Bombay VII of 1944).

The provision that permitted sub‑letting was expressed in strong language. It stated that, notwithstanding anything to the contrary in any law then in force, a tenant could sub‑let any portion of his premises to a sub‑tenant, provided that he promptly informed his landlord in writing of both the fact of the sub‑letting and the rent at which the premises were sub‑let. This wording was quoted in the cases reported as (1) (1953) 56 Bom. L.R. 467 and (2) A.I.R. 1949 Bom. 131. Counsel argued that the non‑obstante clauses appearing in section 10 of the Bombay Rents, Hotel Rates and Lodging Houses Rates (Control) Act, 1944 and in section 15 of the same Act were similar in language and therefore required a similar interpretation.

The Court observed that a non‑obstante clause must be read together with the remainder of the section in which it appears. Section 10 of the 1944 Act allowed sub‑letting on certain conditions, but section 9 of that Act also provided for a contract between landlord and tenant that could expressly prohibit sub‑letting. In the decision of Cooper v. Shiavax Cambatta, the two provisions were reconciled by holding that a contract created under section 9 would prevail over the permission contained in section 10. By contrast, section 15 of the Act expressly prohibited sub‑letting, and consequently any contract that attempted to allow sub‑letting could not neutralise the prohibitory effect of section 15. The Court therefore concluded that the non‑obstante clauses in section 10 and section 15 could not be given the same effect, because one section grants a conditional permission while the other imposes an absolute prohibition.

The respondent’s suit for ejectment was instituted under section 13(1)(e), which provides: “Notwithstanding anything contained in this Act (but subject to the provisions of section 15), a landlord shall be entitled to recover possession of any premises if the Court is satisfied that the tenant has, since the coming into operation of this Act, sub‑let the whole or part of the premises or assigned or transferred in any other manner his interest therein.” Counsel for the appellant argued that section 13(1)(e) should be read in isolation and not in connection with section 15. The Court examined the language of the provision and found it unmistakably subject to section 15, meaning that the two sections must be read together. Consequently, the alleged right to recover possession under section 13(1)(e) could be exercised only when the conduct complained of was not protected by the prohibition in section 15.

The appellant claimed that, under an agreement with the respondent, he was entitled to sub‑let the premises. The Court held that such an agreement was void because it contravened the express prohibition in section 15 of the Act and also violated section 23 of the Contract Act, which bars enforcement of contracts that the law prohibits. To enforce the agreement would produce the very result that the statute seeks to prevent, and upholding the appellant’s plea would amount to enforcing an illegal contract. The appellant further relied on the maxim “in pari delicto potior est conditio posidentis” to argue that the respondent could not enforce his right under section 13(1)(e). The Court clarified that the maxim does not mean that when a transaction is tainted by illegality, the party who remains in possession is automatically entitled to retain possession. Rather, the maxim is understood to apply where the court refuses to assist either party, and the consequent effect is that the party in possession is not disturbed. In the present case, the statutory prohibition on sub‑letting prevailed over any private agreement.

The Court explained that the maxim “the party in possession of goods after its completion is always and of necessity entitled to keep them” means that when circumstances are such that the Court will refuse to assist either side, the practical result is that the party who remains in possession will not be disturbed. This interpretation was quoted from the judgment of Lord Justice Du Parcq in Bowmakers Ltd. v. Barnet Instruments Ltd. (1). The Court observed that the respondent in the present matter had not sought judicial enforcement of any agreement. Once the lease instrument was executed, possession handed over and the sub‑letting carried out, the arrangement had taken full effect without any need for the Court’s assistance to enforce it. The respondent’s ejectment suit was therefore not an action to enforce the sub‑letting agreement; rather, it was an application to enforce the right of eviction that arises directly from a breach of section 15 of the Act, a breach for which the statute itself supplies a remedy. Consequently, the Court distinguished the present case, where the plaintiff asked for a remedy against a party who, by violating section 15, had made himself liable to eviction, from cases in which the Court is asked to assist a plaintiff in enforcing an agreement whose purpose is to commit an illegal act. The respondent was merely seeking to enforce statutory rights, and the appellant could not be allowed to rely before the Court on any right that originated from or grew out of an illegal transaction, as noted in Gibbs & Sterret Manufacturing Co. v. Brucker (2). The Court held that section 15 of the Act is grounded in public policy, and it has been said that when public policy requires, even an equal participant in an illegal transaction may be denied relief, although restitution may be available in the form of rescission, not enforcement of the contract. The appellant then contended that section 13(1)(e) protects the private rights of the landlord and that, unless the Act contains a contrary provision, such personal rights may be waived or renounced by the landlord. In other words, the appellant argued that the respondent’s right to sue for ejectment on the ground of sub‑letting was a personal right that the landlord had waived by expressly permitting the tenant to sub‑let, and therefore the respondent could not evict the appellant under section 13(1)(e). The plea of waiver was raised for the first time before this Court. The Court noted that waiver is not a pure question of law but a mixed question of law and fact. Since this plea had not been raised or considered by the lower courts, the Court concluded that it could not be permitted at this stage of the proceedings, although it was nevertheless argued.

In support of the appellant, counsel argued that Indian law imposes on a pleader the duty to set out the factual matrix upon which the party relies, and not to advance legal conclusions drawn from those facts. Counsel maintained that all the circumstances from which a plea of waiver could be inferred had been duly presented, and therefore the court should be permitted to consider and argue the issue of waiver at this stage even though it had not been raised at any earlier stage, not even in the statement of case filed in this court. To bolster this position, counsel relied upon the authority of Gouri Dutt Ganesh Lal Firm v. Madho Prasad (1). Assuming that the premise of the argument were accepted, counsel contended that the plea of waiver could not ultimately be permitted, because giving effect to such a plea would compel the court to enforce an agreement that is illegal under section 15 of the Act. Enforcing the illegal agreement would run directly contrary to the statutory provisions, be against public policy, and produce the very result that the statute expressly forbids. In support of this view, counsel cited Surajmull Nargoremull v. Triton Insurance Co. (2), in which Lord Sumner pronounced that “No Court can enforce as valid that which competent enactments have declared shall not be valid, nor is obedience to such an enactment a thing which a Court can be dispensed with by the consent of the parties, or by a failure to plead or to argue the point at the outset.” The citation to Nixon v. Albion Marine Insurance Co. (1) was also placed to illustrate that the enactment in question is prohibitory, not merely a provision granting a party a discretionary protection that may be taken up or left aside at will. Counsel further emphasized that the prohibition is not limited to the protection of revenue or to cases where a penalty is imposed, but is a broader legislative intent to bar the contemplated conduct.

The core issue, therefore, was not simply whether a statutory right, created for the benefit of an individual, could be waived, but whether the court would be assisting the appellant in giving effect to a term of the contract that section 15 of the Act declares illegal. By enforcing the contract, the court would be effectuating an illegality and infringing a statutory provision, conduct that cannot be justified by any agreement or conduct of the parties. The authority of Dhanukudhari Singh v. Nathima Sahu (2) was invoked to support this principle. Further, counsel referred to the statement in Corpus Juris Secundum, Volume 92, page 1068, which observes that “a waiver in derogation of a statutory right is not favoured, and a waiver will be inoperative and void if it infringes on the rights of others, or would be against public policy or morals.” The same rule was reiterated in Bowmakers Limited v. Barnet Instruments Ltd (3). Finally, counsel quoted Mulla’s exposition on the Contract Act (page 198), which declares that agreements seeking to waive an illegality are void on the ground of public policy, and that whenever an illegality appears, the agreement cannot be given effect.

In this matter the Court explained that when illegality is discovered, the mere fact that evidence of it is produced by either party is fatal to the suit. The Court observed that even a clause in the strongest form attempting to waive the objection is contaminated by the defect of the original agreement and is therefore void for the same reasons. The Court further stated that wherever the contamination spreads, it destroys the contract. This statement, the Court affirmed, correctly reflects established law and is backed by authoritative authorities such as Field, J., cited in (1) (1867) L.R. 2 Ex. 338, (2) (1907) 11 C. W. N. 848, 852, and (3) [1945] 1 X.B. 65, 72. The Court also cited Oscanyan v. Winchester Arms Company (1), which with approval quoted the observation of Swayne, J., in Hall v. Coppell (2), that “the principle is indispensable to the purity of its administration. It will not enforce what it has forbidden and denounced. The maxim Ex dolo malo non oritur actio is limited by no such qualification. The proposition to the contrary strikes us as hardly worthy of serious refutation.” The Court reiterated that wherever illegality appears, irrespective of which side the evidence comes from, the disclosure defeats the case. No consent by the defendant can neutralise the effect of the illegality. A solemn stipulation to waive the objection is likewise tainted by the vice of the original contract and is void, and any contamination that reaches the contract destroys it.

The Court further explained that a waiver is simply the abandonment of a right that a person is generally free to relinquish, but a waiver is ineffective unless it amounts to a release. It represents merely an intention not to enforce the right and may be inferred from acquiescence or implied conduct, as described in Chitty on Contracts, 21st ed., p. 381, and illustrated in Stackhouse v. Barnston (3). However, an agreement to waive an illegality is void on public‑policy grounds and cannot be enforced. In Mytton v. Gilbert (4) Ashurst, J., observed that “there is further reason why the trustees should not be estopped; this is a public Act of Parliament, and the Courts are bound to take notice that the trustees under this Act had no power to mortgage the toll‑houses. This deed therefore cannot operate in direct opposition to an Act of Parliament, which negates the estoppel.” Vaughan Williams, L. J., in Norwich Corporation v. Norwich Electric Tramways Company (5) added that the situation is not comparable to a contractual provision that benefits one party and may be waived. It concerns a statutory provision enacted by Parliament, which—though it may incidentally benefit the parties—must be regarded as inserted in the public interest. Consequently, any attempt to waive such statutory provisions is unsustainable.

The Act expressly provided that the matters referred to in the relevant section were to be decided by an expert who would be nominated by the Board of Trade. It was submitted by the appellant that, although this situation did not fall within the narrow technical definition of estoppel, it should be regarded as a waiver of the statutory provisions that had been introduced into the legislation for the benefit of private rights. The Court observed that the dispute undeniably raised a question of jurisdiction; however, the judgment below had been founded on the principle that a statutory provision, which was enacted in the public interest, could not be waived. Consequently, the Court found that the contention that a waiver had occurred was untenable. In the Court’s view, the decision of the High Court was sound and well‑founded. Accordingly, the appeal was dismissed, and the appellant was ordered to pay the costs of the proceedings. The appeal was therefore dismissed with costs.