Immani Appa Rao And Others vs Gollapalli Ramalingamurthi And Ors
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 76 of 1959
Decision Date: 22 September 1961
Coram: P.B. Gajendragadkar, Bhuvneshwar P. Sinha, Raghubar Dayal
In the matter of Immani Appa Rao and Others versus Gollapalli Ramalingamurthi and Others, the Supreme Court of India rendered its judgment on the twenty‑second day of September, 1961. The judgment was authored by Justice P. B. Gajendragadkar, and the bench that heard the case comprised Justice P. B. Gajendragadkar, Justice Bhuvneshwar P. Sinha and Justice Raghubar Dayal. The petitioners were Immani Appa Rao and the other appellants, while the respondents were Gollapalli Ramalingamurthi and the associated parties. The decision is reported in the 1962 volume of the All India Reporter at page 370 and also appears in the 1962 Supreme Court Reporter (Third Series) at page 739. The primary statutory provision discussed was Section 84 of the Indian Trusts Act of 1882, which deals with fraud, benami conveyance intended to defraud creditors, a suit by the benamidar for possession, the plea of fraud in defence, and the question of whether estoppel should bar such a defence. The headnote of the reported judgment set out that the conveyance that formed the subject of the suit was the product of a collusive plan between the first respondent and the second respondent designed to deceive the latter’s creditors. Under the agreement, the first respondent was to hold title as benamidar for the second respondent and his sons, who were the appellants. The scheme succeeded, resulting in the actual defrauding of the second respondent’s creditors. Subsequent to the fraud, the first respondent instituted the present suit seeking a declaration of title and recovery of possession against the second respondent and the appellants, invoking the conveyance as the basis of his claim. The defendants opposed the suit, contending that the conveyance was fraudulent, lacked any consideration, and therefore conveyed no valid title. The Madras High Court, on second appeal, held that the appellants and the second respondent were estopped from raising the defence of fraud, and it decreed in favour of the plaintiff. The central issue before the Supreme Court was whether the High Court’s view on estoppel was correct and whether the ostensible owner was entitled to a decree.
The Supreme Court held that estoppel could not arise in a situation where both parties were guilty of fraud. It explained that where one conspirator in a fraudulent scheme seeks a decree based on the very conveyance that resulted from the fraud, and the other conspirator raises the plea of fraud in defence, the matter must be resolved on the basis of public policy. Since the outcome must inevitably favour one of the parties, the Court should adopt the approach that causes the least injury to the public interest. Accordingly, the Court preferred to allow the defence of fraud to be raised and, if that defence succeeded, to let the properties remain in their present possession rather than to grant a decree founded on a fraudulent claim. The Court noted that it would make no material difference whether the suit was founded on a deed of conveyance or on a contract. In arriving at its conclusion, the Court referred to several authorities, including Vodiana Kamayya v. Oudisa Kamayya (1917) 32 M.J.J. 484, which was disapproved, as well as Kepula Kotayyar Naidu v. Chitrapur Mahalakshmama (1933) I.L.R. 56 Mad. 646 and Mutho K.B.A.R.P.L. Arunachalam Chettiar v. Rangaswamy Chettiar (1936) I.L.R. 59 Mad. 289, also disapproved. The Court further mentioned Berg v. Sadler and Moore [1937] 2 K.B. 158, T. P. Petherperumal Chetty v. B. Muniandi Servai (1908) L.R. 35 I.A. 98, and Holman v. Johnson (1775) 1 Cowper 34 1, as authorities referred to in its analysis. It also considered the case of Deo, Dem. Roberts against Roberts, Widow (1819) 106 E.R. 401. After reviewing the case law, the Court observed that Section 84 of the Indian Trusts Act was not exhaustive in its provisions, and because the present case fell outside the scope of that section, the determination had to be based on general policy considerations.
Section 84 of the Indian Trusts Act was not exhaustive in its provisions, and because the facts of the present dispute did not fall within that section, the matter had to be resolved by applying considerations of general policy. The case before the Court was a civil appeal, numbered 76 of 1959, filed under the appellate jurisdiction of the Supreme Court. The appeal sought to overturn the judgment and decree dated 16 November 1951, issued by the Madras High Court in the second appeal numbered 1656 of 1947. Counsel for the appellants was T V R Tatachari, while the respondent identified as No 1 was represented by K N Rajagopal Sastri and T Satyanarayana. The appeal was decided on 22 September 1961, and the judgment was delivered by Justice Gajendragadkar.
The appeal arose from a certificate granted by the Madras High Court permitting a challenge to its own judgment and decree in the second‑appeal suit numbered 27 of 1939. That suit had been instituted by respondent 1, Gollapalli Ramalingamurthi, against respondent 2, Immani Venkanna, and Venkanna’s four sons, who were designated as appellants 1 through 4. Both the appellants and respondent 2 were members of an undivided Hindu family.
Respondent 1 asserted that he had purchased the properties described in the Schedule attached to his plaint on 1 April 1936. The purchase was effected through a sale conducted by the Official Receiver in the insolvency of respondent 2. A registered sale deed in favour of respondent 1, identified as Exhibit P‑4, was executed on 21 September 1936. Following that sale, respondent 1 took possession of and enjoyed the properties after dividing them with Rayudu, who was the brother of respondent 2.
In October 1938, the appellants and respondent 2 entered the said premises without permission, thereby trespassing. Consequently, respondent 1 instituted the present suit, seeking a declaration confirming his title to the properties, possession of the premises, and both past and future mesne profits. This description summarised the nature of the suit from which the present appeal derived.
Respondent 2, together with the appellants, contested the claim of respondent 1 on several grounds. They argued that the transfer of the properties to respondent 1 was benami and that respondent 1 was not the true owner. To support this allegation, respondent 2 presented what he claimed was the antecedent history of the alleged sale. He contended that he had suffered heavy business losses, leaving him indebted to the amount of Rs 25,000. Fearing that the contested properties might be lost to his creditors, he and his junior mother‑in‑law, Kanthamani Seshamma, consulted Suryaprakasa Sastrulu, the father‑in‑law of respondent 1, for advice. Acting on that advice, respondent 2 executed a collusive and nominal mortgage deed for Rs 1,000 in favour of respondent 1 on 16 June 1933, documented as Exhibit P‑9.
Subsequently, on the same advice, a similar nominal transfer deed was executed in favour of respondent 1 on 6 August 1939, identified as Exhibit P‑12. This later deed was executed after the properties covered by it had been released from an earlier non‑possessory mortgage, recorded as Exhibit P‑II, which had been created on 21 July 1930. Thus, according to respondent 2, the documents executed in favour of respondent 1 were nominal, collusive, and lacked any genuine consideration.
In this case, the respondent who was alleged to be a benami claimant asserted that the documents executed in favour of the other respondent were merely nominal and collusive, and that no consideration supported them. He further claimed that the execution of those collusive documents had become known to some of his creditors, which prompted one of those creditors to file an insolvency petition against him, identified as 1.P. No. 91 of 1933. The petition was presented before the Subordinate Judge at Ellore on 15 September 1933. In the ensuing insolvency proceedings the respondent was declared insolvent, and an Official Receiver was appointed to take control of his properties. The Official Receiver proceeded to sell the properties, but the sale was subject to the earlier nominal mortgages favouring the other respondent. Subsequently, Kanthamani Seshamma purchased the properties with her own funds, but she did so benami, placing the title in the name of the other respondent, on the condition that he would reconvey the properties to the insolvent respondent’s family whenever they required it. The other respondent thereafter denied that he had ever taken possession of the properties, and it was contended that he possessed no title and therefore could not obtain any relief in the suit he had instituted. These statements formed the core of the pleas raised by the respondent, and the appellants, who were joined with him, reiterated the same contentions in their separate written statements.
At trial, the court identified three preliminary issues, numbered 5, 8 and 9. Issues 8 and 9 concerned the court fees payable on the claim asserted in the plaint and the pecuniary jurisdiction of the court. The court held that it had jurisdiction to try the suit and assessed the value of the subject‑matter at Rs 2,411‑7‑2, for which the respondent paid the requisite additional court fees. Issue 5 related to whether the sale made in favour of the respondent bound the appellants’ shares in the family properties. The trial judge answered this issue in favour of the appellants, relying on the Full Bench decision of the Madras High Court in Ramasastrulu v. Balakrishna Rao, I.L.R. 1943 Mad. 83. According to that precedent, the right of the father of the appellants, who acted as manager of the undivided Hindu family, to sell his sons’ shares for purposes binding on the family did not vest in the Official Receiver upon insolvency. Consequently, the sale effected by the Official Receiver in favour of the respondent could not, in law, bind the appellants’ shares in the conveyed properties.
After these findings were recorded, the respondent applied to amend his plaint, and the amendment was permitted. By way of amendment, the respondent alleged that the suit properties were self‑acquired by the insolvent respondent, and therefore the appellants held no interest in them. On this alternative pleading, the respondent further contended that the properties sold by the Official Receiver to him constituted the entire estate of the insolvent respondent alone. This claim, together with an alternative prayer that he should either receive possession of the whole of the properties or a one‑fifth share, depending on whether the properties were deemed separate to the insolvent respondent or part of the undivided family estate, was opposed by the insolvent respondent and the appellants in their additional written statements. When the suit proceeded to trial on the amended pleadings, the learned trial judge framed several issues arising from the pleadings and, on his own initiative, framed an additional issue 1(a) to determine whether the respondent was a benamidar of the appellants and, if so, whether the appellants could raise that fact as a defence in the suit.
The amendment filed by respondent 1 asserted that the Official Receiver had transferred to him the whole of the property that belonged solely to respondent 2. In addition to that claim, respondent 1 prayed that he should either be granted possession of the entire property or, alternatively, be allotted one‑fifth of the property, depending on whether the court determined that the property was the separate estate of respondent 2 or that it formed part of the undivided Hindu family consisting of respondent 2 and the appellants. The appellants and respondent 2 opposed these alternative grounds in their additional written statements. The judgment record also notes a citation to I.L.R. 1943 Mad. 83. When the suit proceeded to trial on the basis of the amended pleadings, the trial judge formulated several issues for determination. Apart from the issues that arose directly from the pleadings, the trial judge independently raised an additional issue, designated as issue 1(a), to examine whether respondent 1 was acting as a benamidar on behalf of the appellants and, if that were so, whether the appellants could rely on that relationship as a defence in the suit.
The trial judge concluded that the properties in dispute were the joint family property of respondent 2 and the appellants. He further observed that even if the properties had originally been the self‑acquired assets of respondent 2, they had become intermingled with the family holdings and therefore formed part of the undivided family estate. Accordingly, the judge held that the appellants’ shares in those properties never vested in the Official Receiver and therefore were not transferred to respondent 1. The purchase made by respondent 1 from the Official Receiver was deemed to be a benami transaction intended to benefit the appellants, and respondent 1 had never actually taken possession of any portion of the property. The judge characterized the sale to respondent 1 as fraudulent, intended to defraud the creditors of respondent 2, and found that the fraud had indeed been executed, resulting in the creditors being deceived. Because the fraud had been carried out, the judge held that respondent 2 and the appellants could not plead that fraud as a defence. On this basis, the judge issued a preliminary decree granting respondent 1 a one‑fifth share in the items numbered 1 to 4 and 8 to 10 listed in the schedule annexed to the plaint. For the items numbered 5 to 7, which comprised the family dwelling house, the judge awarded respondent 1 monetary compensation. Consistent with the preliminary decree, the judge also directed that any future mesne profits be determined in accordance with Order 20, Rule 12(c) of the Code of Civil Procedure. In response to this decree, respondent 1 filed appeal No. 288 of 1943 before the Subordinate Judge of West Godavari.
The appeal originated in Ellore, where the appellant argued that a decree should be granted in his favour covering the entire set of properties that had been sold to him by the Official Receiver. The respondents filed cross‑objections and contended that the trial judge had erred by suomoto framing issue 1(a) and by reaching a conclusion that they believed was incorrect. The appellate court examined the findings of the trial judge, agreed with those conclusions, and consequently dismissed both the appellant’s appeal and the cross‑objections raised by the respondents. In response to that appellate decision, the petitioner filed a Second Appeal, numbered 1656 of 1947, and the respondents again filed cross‑objections. This second appeal was heard before Mr Justice Raghava Rao, who was informed that the Provincial Insolvency (Amendment) Act No 25 of 1948 had introduced section 28A and had been given retrospective effect. The petitioner asserted that, because of this amendment, the earlier finding that the Official Receiver could not lawfully sell the respondents’ shares in the family properties could no longer be sustained. The respondents countered by arguing that issue 1(a) had been introduced to them as a surprise after the trial court had already heard arguments on both sides, and that they had not been afforded an opportunity to demonstrate that the alleged fraud had not actually been carried out. They further submitted that, if the fraud had not been consummated, the principle of estoppel invoked against them could not arise. The High Court accepted the respondents’ contention and directed the trial court to make a specific finding on issue 1(a), giving both parties a further chance to present evidence concerning whether the fraud connected with the benami purchase had been completed or not. After being remanded, the trial court took evidence and concluded that respondent 2 had successfully perpetrated fraud on his creditors by arranging for the properties purchased by respondent 1 to be held benami for his sons in the sale conducted by the Official Receiver. The trial court submitted this finding to the High Court, whereupon the respondents filed objections to the conclusion.
At a subsequent hearing before Mr Justice Ragghava Rao, the respondents raised an additional point that the amendment inserting section 28A into the Provincial Insolvency Act was ultra vires. The learned judge rejected the respondents’ objections to the trial court’s finding on the remanded issue and accepted that finding as correct. However, because the validity of the amending Act was itself being contested, the judge decided that it would be more appropriate for the matter to be heard by a two‑judge bench. Accordingly, the second appeal was transferred to a division bench of the Madras High Court for final determination. The division bench proceeded to consider all the questions raised, including the challenge to the amendment’s constitutional validity and the evidentiary findings on the alleged fraud, in order to render its final judgment.
The High Court observed that the contention that Act 25 of 1948 was ultra vires had not been raised before it, and that the appellants had attempted to raise certain other grounds which the Court had not permitted them to pursue. Consequently, the principal question before the High Court was whether, given that the fraud contemplated by respondent 2 and respondent 1 had been fully carried out, the appellants were nevertheless entitled to plead the existence of that fraud as a defence against respondent 1’s claim for possession of the suit properties in the present proceedings. The Court examined the apparently conflicting authorities on this point and adhered to the view that had been consistently followed by the High Court since the decision in Vodiana Kamayya v. Gudisa Mamayya (1). Applying that precedent, the Court held that both the appellants and respondent 2 were estopped from canvassing the fraud against respondent 1 in the present suit. As a result, the decree was entered in favour of respondent 1, granting him possession of the entire parcel of property that had been conveyed to him by the Official Receiver. The appellants approached this Court against that decree, carrying with them a certificate issued by the High Court. The principal argument advanced on their behalf, by counsel, was that the High Court had erred in concluding that, where both the transferor and the transferee were equally culpable and the contemplated fraud had been executed, the appellants could not invoke the fraud as a defence to respondent 1’s claim for possession of the properties conveyed to him benami by the Official Receiver. The counsel contended that when the parties are equally guilty, estoppel cannot be invoked against the appellants and that the estate should remain where it presently rests.
The issue raised was narrow in scope and the material facts underlying it were no longer in dispute. The transaction that benefitted respondent 1 arose from a fraudulent scheme to which both he and respondent 2 had mutually consented. The scheme was executed with the joint agreement of the vendor and the vendee for the purpose of deceiving the vendor’s creditors. Because the transfer was undertaken solely to effect the fraud, it was not supported by any consideration, and the transferee had agreed to act as the benamindar until the transferor required the reconveyance of the properties to his sons. The original objective of the fraud had been achieved, and the creditors of respondent 2 had indeed been defrauded. Nevertheless, possession of the properties continued to be exercised by respondent 2 and his sons, the appellants. In the present suit, respondent 1 seeks possession on the basis that a deed of conveyance had been executed in his favour by the Official Receiver. Thus, both respondent 1 and respondent 2, along with the appellants, are confederates in the same fraudulent arrangement.
Both respondent 2 and the appellants attempted to resist respondent 1’s claim for possession of the properties that had been conveyed, asserting that the conveyance was void because it had been carried out for a fraudulent purpose that had already been completed. They argued that the transfer had been made without any consideration and that no title had passed to the transferee. Respondent 1 counter‑claimed this challenge to his title by pleading that respondent 2, who had participated in the fraud, could not be permitted to rely on his own fraud as a basis for refusing to surrender possession of the properties. He further maintained that a conveyance duly executed in his favour existed and that the Court should act upon that deed without allowing respondent 2 to contest its validity. The High Court upheld respondent 1’s plea and refused to permit either respondent 2 or the appellants to invoke the fraud in support of their defence. The correctness of that decision formed the central question to be decided on appeal. Reported authorities dealing with this issue revealed that the dispute often reduces to a clash of legal maxims. The appellants emphasised that the doctrine most applicable to the present facts was “ex dolo malo non oritur actio” or “ex turpi causa non oritur actio”, meaning that a right of action cannot arise from fraud or from a violation of law. They further submitted that, where both parties are equally guilty, the law favours the party who is actually in possession, invoking the maxim “in pari delicto potior est conditio possidentis”. In contrast, respondent 1 argued that the appropriate maxim was “nemo auditur propriam turpitudinem allegans”, which holds that the party who first relies on his own fraud must fail; in other words, a person cannot plead his own fraud. To determine which maxim should govern the case, it was necessary to recall Lord Wright, M.R.,’s observations in Berg v Sadler and Moore. Referring to the maxim “ex turpi causa non oritur actio”, Lord Wright noted that, although the maxim is expressed in lofty language, it encapsulates an important principle, yet it is too vague and general to be applied without a careful examination of the surrounding circumstances and the specific rules laid down by authority. Consequently, the Court concluded that a careful and detailed analysis of the true scope and effect of the competing maxims was required before arriving at a decision on the appeal.
The Court examined the rival parties’ submissions to ascertain which of the known maxims was relevant and applicable to the circumstances of the present dispute. It accepted as common ground that the method employed by the Court in resolving the controversy had to be guided solely by considerations of public policy. The central question therefore became which principle would better promote, and be more consistent with, the public interest in the facts before it. In other words, because both parties before the Court were confederates in the alleged fraud, the Court needed to determine which approach would cause the least injury to public interest. Whichever approach the Court adopted, one party would obtain a decree and the other would fail, making it necessary to consider which party’s success would be less detrimental to the public good. Respondent 1, one of the alleged conspirators, sought a decree in his favour, which would require the Court’s active assistance in granting him possession of the properties. The properties were those referred to in (1) [1937] 2 K. B. 158, 162, and had been withheld from him by respondent 2 and the appellants. If the defence raised by the appellants were rejected, respondent 1 would rely on an ostensible deed of conveyance that purported to transfer title of the disputed properties to him. Nevertheless, under the present circumstances, granting such a decree would actively aid respondent 1 in giving effect to the fraud in which he participated, thereby turning the Court into an instrument of fraud, which was patently inconsistent with public interest. Conversely, if the Court permitted the allegation of fraud to be raised, it would be positioned to conduct an enquiry to decide whether a case of mutual fraud existed and whether the intended fraud had been effectively carried out by both parties. Should the enquiry find that both parties were equally guilty and that the fraud they intended had been completed, the position would be that the party raising the defence was not seeking the Court’s active assistance. The defence merely contended that a confederate in fraud should not be permitted to obtain a decree because the document of title on which the claim relied conveyed no valid title at all. It was acknowledged that allowing respondent 2 and the appellants to succeed in their defence would incidentally assist them in retaining possession, but such assistance was purely passive, merely leaving possession where it already existed. In effect, the Court would be affirming the factual situation proved before it, thereby allowing possession to remain undisturbed, which the Court considered to be less harmful to the public interest than granting a decree to the other party. Consequently, the Court concluded that there could be no question of estoppel arising in these circumstances.
In the present case the fraud was mutually agreed upon by both parties and each assisted the other in its execution. The principle that a person cannot plead his own fraud is understood to mean that a party may not approach a court for assistance while basing that request on the very fraud he himself perpetrated. It is relevant to note that the first respondent is guilty of two distinct frauds. First, he joined the second respondent in a scheme designed to defeat the latter’s creditors, thereby participating in the fraudulent conduct. Second, he committed an additional fraud by concealing from the court the fraudulent nature of the transfer when he sought a decree for the recovery of the property that had been conveyed to him. The conveyance in his favour was made without any consideration and arose out of fraud; consequently, it does not confer any valid title upon him. If the defence of fraud were barred, the court would, in effect, be giving effect to a transaction that is void from the outset. Accordingly, the court was inclined to hold that the overriding consideration of public interest required that the defence of fraud be permitted to be raised and adjudicated upon, and that, if upheld, the estate should remain where it presently lies. This approach was viewed as causing less harm to the public interest than the alternative of validating a fraudulent transfer.
The issue of how to treat disputes between co‑participants in fraud has been examined by many High Courts, and, with the exception of the Madras High Court, the prevailing view aligns with the reasoning adopted here. In the Bombay High Court, the rule that possession should stay where it is when two parties are both engaged in fraud has been consistently applied until Chief Justice Sir Lawrence Jenkins expressed dissent in Sidlingappa Bin Ganeshappa v. Hirwa Bin Tukasa (1). Subsequent judgments occasionally questioned the correctness of that decision, as seen in Lakshman Balvant Khisti v. Vasudev Mohoniraj Pande (1), and ultimately the Full Bench reversed Sir Lawrence Jenkins’ stance in Guddappa Chikkappa Kurbar v. Balaji Ramji Dange (2). Since that reversal, the Full Bench’s ruling has been uniformly followed by the Bombay High Court. The same principle has also been adopted by the Calcutta, Allahabad, Nagpur and Patna High Courts, as illustrated in cases such as Preomath Koer v. Kazi Mahomed Shazid (3), Emperor v. Abdul Sheikh (4), Vilayat Husain v. Misran (5), Nawab Singh v. Daljit Singh (6), Qader Baksh v. Hakim (7), Bishwanath g/o Karunashanker Shukla v. Surat Singh alias Chhuttu Singh s/o Bhabhut Singh (s) and J. C. Field Electric Supply v. K. Agarwala (9). The Madras High Court, however, initially followed the same line of thought in earlier decisions such as Venkataramana v. Viramma (10), Yaramati Krishnayya v. Chundru Papayya (11) and Raghavalu Chetty v. Adinarayana Chetty (12). A departure from this trend occurred in Vodiana Kamayya v. Gudisa Mamayya (13), where a Division Bench upheld the view that a person who had transferred property benami to facilitate fraud could not, after the fraud was completed, invoke the benami character of the transaction as a defence in a suit for possession. Since that judgment, the Madras High Court has continued to follow this position, as seen in Keppula Kotayyar Naidu v. Chitrapu Mahalakshmi amma (14) and Muthu K. R. A. R. P. L. Arunarhalam Chettiar v. Bangaswamy Chettiar (15).
The Court noted that the decisions cited as (7) Bishwanath, son of Karunashanker Shukla v. Surat Singh alias Chhuttu Singh, son of Bhabhut Singh, and J. C. Field Electric Supply v. K. Agarwala (9) were cases involving an illegal contract. It observed that, in the Madras jurisdiction, the early judgments of the High Court had consistently adopted the same principle, as shown by Venkataramana v. Viramma (10), Yaramati Krishnayya v. Chundru Papayya (11) and Ragha valu Chetty v. Adinarayana Chetty (12). However, the Court pointed out that in Vodiana Kamayya v. Gudisa Mamayya (13) a Division Bench of the Madras High Court expressly upheld the view that a party who had transferred property benami to another for the purpose of defrauding his own creditors could not, once the fraud was completed, invoke the benami character of the transaction as a defence in a suit brought by the transferee for possession under the conveyance. The Court further explained that this approach has since become the prevailing rule in the Madras High Court, as reflected in Keppula Kotayyar Naidu v. Chitrapu Mahalakshmi (14) and Muthu K. R. A. R. P. L. Arunarhalam Chettiar v. Bangaswamy Chettiar (15). In the present opinion the Court listed the authorities consulted, namely (1) (1930) 33 Bom. L.R. 356, (2) I.L.R. 1941 Bom. 575, (3) (1903‑4) 8 C.W.M. 620, (4) A.I.R. 1920 Cal. 90, (5) (1923) I.L.R. 45 All. 396, (6) (1936) 1 L.R. 58 All. 842, (7) (1932) 1 L.R. 13 Lab. 713, (8) A.I.R. 1943 Nag. 113, (9) (1951) 1 R. 30 Pat. 137, (10) (1887) 1 L.R. 10 Mad. 17, (11) (1897) 1 L.R. 20 Mad. 326, (12) (1909) 1 L.R. 32 Mad. 323, (13) (1917) 32 Mad. L.J. 484, (14) (1933) I.L.R. 56 Mad. 616 and (15) (1936) I.L.R. 59 Mad. 289, and concluded that the view adopted by those later Madras High Court decisions did not represent the correct legal approach to the issue. The Court then referred incidentally to the observations of the Privy Council in T. P. Petherpermal Chetty v. R. Muntandi Servai, noting that the Privy Council had considered a situation where the purpose of the fraudulent conveyance was defeated, thereby invoking different principles. While discussing the broader problem, Lord Atkinson, who delivered the judgment of the Board, endorsed the observations from Mayne’s Hindu Law, which support the view now taken. Mayne is quoted as saying that the fact that A has assumed B’s name to cheat X provides no justification for a Court to assist B in cheating A; however, if A seeks the Court’s aid to recover the estate or obtain title in his own name, the Court must consider whether A himself has cheated X, because assuming an alias then ceases to be a mere mask and becomes a reality.
The Court noted that when a person assumes another’s name in order to cheat, that assumed identity ceases to be a mere disguise and becomes a reality. It was considered proper for a Court to refuse to permit such a person to regain the individuality that he voluntarily abandoned for the purpose of defrauding others. Conversely, if the individual has not actually defrauded anyone, the Court found no justification for punishing his intention by awarding his estate to the second party, whose misconduct is even more complicated than that of the first. This approach reflects the principle found in English decisions. However, where the fraudulent or illegal purpose is carried out through a colourable grant, the maxim In pari delicto potior est conditio possidentis applies, meaning that the Court will assist neither party and will allow the estate to remain where it presently lies. Lord Atkinson observed that this statement of law is correct and, in that sense, the view expressed in the 1908 report L.R. 351 A. 98 and in Mayne’s Hindu Law (7th Ed., p. 595, para 446, 35 I.A.P. 102) is consistent with the opinion of the Privy Council, which had approved Mayne’s formulation of the rule.
In support of the opposite view, reliance is often placed on an early English decision in Doe, Dem. Roberts against Roberts, Widow (1). In that case it was held that “a man can be allowed to allege his own fraud to avoid his own deed; and, therefore, where a deed of conveyance of an estate from one brother to another was executed, to give the latter a colourable qualification to kill game. The document was, as against the parties to it, valid and sufficient to support an ejectment for the premises.” When the question was examined, Bayley J observed that “by the production of the deed the plaintiff established a prima facie title; and we cannot allow the defendant to be heard in a Court of Justice to say that his own deed is to be avoided by his own fraud.” Holroyd J added that “a deed may be avoided on the ground of fraud, but then the objection must come from a person neither party nor privy to it, for no man can allege his own fraud in order to invalidate his own deed.”
Taylor, in his treatise Law of Evidence, commented that the decision has been scrutinised and opined that “it seems now clearly settled that a party is not estopped by his deed from avoiding it by proving that it was executed for a fraudulent, illegal or immoral purpose” (2). The learned author further referred to the case of Roberts (1) and noted that in the subsequent case Prole v. Wiggins (3) Sir Nicholas Tindal observed that the earlier decision rested on the fact that the defence set up was inconsistent “with the deed.” Taylor then added that “the case, however, can scarcely be supported by this circumstance, for in an action of ejectment by the grantee of an annuity to recover premises” (1) (1819) 106 E.R.
The citation to Taylor’s Law of Evidence, volume I, eleventh edition, page 97, paragraph 93, is followed by a reference to the case reported in (1837) 3 Bingham N.C. 235; 6 L.J. C.P. 2; 43 R.R. 621. In that case the grantor was permitted to demonstrate that the premises conveyed were of lower value than the annuity for which they were given, and therefore the deed required enrollment, even though the deed itself contained an express covenant stating that the premises were of greater value.
According to the learned author, the more persuasive view is that when both parties to an indenture either know, or have the means of knowing, that the instrument was created for an immoral purpose, in violation of a statute, or contrary to public policy, neither party will be barred from proving the facts that render the instrument void from its inception. The author acknowledges that this position may allow a party to benefit from his own wrongdoing, but considers such a consequence to be of minor significance compared with the serious injustice that would arise from adopting a rule that permits the evasion of law. This observation is recorded on page 98 of the same work.
Taylor further observes that even when a defendant does not plead illegality as a defence, the Court, upon finding evidence of illegality, will take judicial notice of it and dismiss the action on the ground that a cause of action does not arise from an illegal act. He expresses this principle with the maxim that no polluted hand shall touch the pure fountain of Justice, a statement found on page 93 of his text.
The same principle is echoed in the opinion of Story. He explains that, in general, when parties are involved in illegal agreements or transactions—whether prohibited by statute (mala prohibita) or by moral law (mala in se)—courts of equity, adhering to the rule of law concerning participants in a common crime, will refuse to grant any relief. He cites the maxim In pari delicto potior est conditio defendentis et posidentis, noting that older cases sometimes provided relief even when a party would have otherwise benefited from his own inequity. However, modern doctrine has adopted a stricter, more morally and politically sound rule that leaves the parties without relief and offers no support to such claims. This view is recorded in Story’s Equity Jurisprudence, volume I, page 421 (English edition by Randell, 1920, page 298).
In judicial decisions addressing this issue, a passage from Lord Mansfield, Chief Justice, in Holman v. Johnson is frequently quoted. Lord Mansfield remarked that the objection that a contract is immoral or illegal, when raised by the defendant, always sounds unseemly. He emphasized that the objection is not permitted for the defendant’s benefit alone, but is grounded in general principles of public policy that give the defendant an advantage, contrary to the interests of justice.
In discussing the principle of public policy, the Court observed that justice between the plaintiff and the defendant may sometimes be accidental, but the underlying policy remains clear. The Court reiterated the maxim ex dolo malo non oritur actio, meaning that an action does not arise from illegal or immoral conduct. Accordingly, no court will assist a person whose cause of action is founded upon an immoral or illegal act. When the plaintiff’s own pleadings, or any other evidence, show that the cause of action stems from a turpitude or the transgression of a positive law of this country, the court declares that the plaintiff has no right to assistance. The Court emphasized that this refusal is not made for the benefit of the defendant, but solely because the court will not aid a plaintiff whose claim is based on wrongdoing. On behalf of the respondents, counsel argued that the doctrines relied upon by the appellants pertain only to contracts and not to conveyances. It was submitted that a conveyance, unlike a contract, rests on a different legal foundation, and therefore English case law on contracts should not be applied to the present dispute. The Court expressed that it was not persuaded by this submission.
Even assuming that respondent one based his claim on a conveyance, the facts established by respondent two and the appellants demonstrate that the conveyance is void ab initio. The document in question was fraudulently executed and, as a result, it conveys no title to the transferee whatsoever. Consequently, the Court found that the nature of the instrument as a deed of conveyance does not alter the application of public interest and policy considerations, as highlighted in the case citation (1) (1775) 1 Cowrer 341. The respondents further contended that the resolution of the dispute should be confined solely to the provisions of section 84 of the Indian Trusts Act. While the Act is a comprehensive code, the Court noted that equitable principles or public‑policy considerations become relevant only in cases that fall within the ambit of section 84. Section 84 provides that where an owner transfers property for an illegal purpose that is not executed, the transferee must hold the property for the benefit of the transferor. The section also covers situations where the transferor is less culpable than the transferee, or where allowing the transferee to retain the property would defeat statutory provisions. The Court observed that none of these circumstances apply to the present matter because the transferee is not in possession of the property and the case does not fall within any of the three categories listed in the section. Therefore, the argument that equitable principles may be invoked only in situations covered by section 84 was rejected without difficulty.
In this case the Court observed that the matter was wholly outside the scope of section 84, and consequently it had to be evaluated according to general public‑policy considerations. The Court reiterated that, when judged in the light of those considerations, the public interest would suffer less damage if the property were allowed to remain where it currently lies. Accordingly the Court concluded that the High Court had erred by failing to give effect to the trial‑court finding that the fraud which respondents 1 and 2 had mutually agreed to and contemplated had been fully carried out and that, in the execution of that fraud, both respondents bore equal culpability. On that basis the Court held that the appeal should be allowed and that the suit filed by respondent 1 must be dismissed. The Court further directed that each party should bear its own costs throughout the proceedings. Finally, the Court formally recorded that the appeal was allowed.