“It is never the claim of the plaintiff that defendants are/were not competent to enter into contract; agreement was without free consent or that consideration of same (agreement) is illegal hence within meaning of the Section 10 of the Act, the agreement was / is valid and legal”
IN THE HIGH COURT OF SINDH AT KARACHI
PRESENT: MR. JUSTICE SALAHUDDIN PANHWAR
SUIT NO.208/2015
Plaintiff : Mirza Shakir Baig, through Mr. Asim Iqbal, advocate.
Defendants : Miss Iffat Chughtai & others, through Mr. Khawaja Shamsul Islam, advocate.
Date of hearing : 15.01.2016
Date of announcement : 22.03.2016
JUDGMENT
1-Through this judgment, I am going to decide a legal controversy, arose regarding application of plaintiff for return of earnest money (CMA No.1784/2015) while that (statement of defendants) for decreeing the suit of the plaintiff to extent of prayer clause(s) (i), (ii) and (v) only.
2. A brief reference to facts of case, necessary to understand controversy, is hereunder:
The plaintiff filed a suit for Specific Performance, Declaration, and Injunction & Damages with following prayer(s):
(i). Declaration that the final date for the payment of sale is 15.01.2016 and the defendants are bound to correct the year / figure in the receipt dated 18.09.2014 as due to typographical mistake, erroneously the figure 5 has been mentioned instead of figure 6.
(ii). Declaration that the defendants are liable to transfer/convey the said property i.e. offices Nos.305, 306, 307 and 308, situated on third floor in the project AL-AMEERA CENTRE on plot No.150, Survey sheet AM, situated in Artillery Maidan Quarters, Saddar, Karachi to the plaintiff and the plaintiff is entitled for the transfer/conveyance of the same to him, with valid, subsisting and marketable title.
(iii). Direct the defendants to pay damages to the plaintiff to the tune of Rs.500,00,000/-.
(iv). Injunction restraining the defendants from transferring/conveying, alienating, charging, transferring mortgaging the said property to any other person except to the plaintiff or his nominee.
(v). Specific performance directing the defendants to perform the verbal contract conveying the said property to the plaintiff as agreed/refusal to perform the contract direct the Nazir of this honourable Court to execute a sale deed in favour of the plaintiff or his nominee in respect of the said property i.e. offices Nos.305, 306, 307 and 308, situated on third floor in the project AL-AMEERA CENTRE on plot No.150, Survey sheet AM, situated in Artillery Maidan Quarters, Saddar, Karachi.
ALTERNATIVELY
In the event if the defendants are not ready and willing to correct the date for the final payment i.e. 15.01.2016 as agreed earlier by the plaintiff and the defendants and thereafter, this honourable Court is unable to pass a judgment and a decree for the transfer/conveyance of the said property i.e. offices Nos.305, 306, 307 and 308, situated on third floor in the project AL-AMEERA CENTRE on plot No.150, Survey sheet AM, situated in Artillery Maidan Quarters, Saddar, Karachi in favour of the plaintiff then pass a judgment and decree for.
a. Not any agreement was entered between the plaintiff and the defendants regarding the sale of suit property/offices Nos.305, 306, 307 and 308, situated on third floor in the project AL-AMEERA CENTRE on plot No.150, Survey sheet AM, situated in Artillery Maidan Quarters, Saddar, Karachi.
b. Return / refund of Rs.25,00,000/- (Rupees twenty five lakh) already paid in p[art performance by plaintiff to the defendants with profit, interest, bank charges at the rate of 20% per annum.
c. Damages in the sum of Rupees equal to the amount of agreed consideration.
d. Cost of the suit.
e. Any other / further relief that this honourable Court may deem fit and proper under the circumstances of the case.
3- Facts as stated are that defendants are owners of offices Nos.305, 306, 307 and 308, situated on third floor in the project AL-AMEERA CENTRE on plot No.150, Survey sheet AM, situated in Artillery Maidan Quarters, Saddar, Karachi; plaintiff agreed to purchase the same subject to payment of a total consideration of Rs.18,917,500/- in 16 months/up-to mid of January 2016; that plaintiff paid an amount of Rs.25,00,000/- as token money by three pay orders dated 17.09.2014 duly encashed by defendants; that it was agreed that before singing sale agreement defendants will hand over duly paid/cleared bills of utility and also NOCs clearance certificates from concerned authorities and association of building that there are no remonstrations, dues etc. but the defendants miserably failed to execute sale agreement and settle terms and conditions which are necessary and also agreed between the plaintiff and defendants for performance of contract, defendants did not provide copies of paid bills of utilities nor NOCs and clearance certificates; that instead of complying with requisite formalities, defendants maliciously sent notice dated 14.1.2015 to plaintiff for cancellation of verbal agreement and forfeiture of amount paid; defendants delayed execution of sale agreement and correction of year / figure in receipt dated 18.09.2014 to usurp the earnest money; that plaintiff relied said notice and defendants vide letter dated 26.01.2015 admitted the contents of plaintiff’s reply dated 19.01.2015 that they avoided correction of the year/figure in receipt dated September 18, 2014 for reasons as mentioned in plaintiff’s reply, defendants not only stated that they had terminated verbal agreement of sale but also forfeited the earnest money of Rs.25,00,000/-; that due to this malafide act of defendants, plaintiff suffered great mental torture, agony and is still sufferings the defendants have threatened that they have cancelled so-called verbal sale agreement and forfeited the earnest money paid by plaintiff, the plaintiff is claiming Rs.500,00,000/- as damages from defendants jointly or severally.
4. Through application (CMA No.1784/2015) plaintiff prayed:
‘…… to direct the defendants to deposit the earnest / advance money amount to Rs.25,00,000/- with the Nazir of this Court, which they have received from the plaintiff in respect of the sale of suit property i.e offices Nos…….. Furthermore, direct the Nazir of this Honourable Court to invest the same in a profitable scheme till disposal of the suit.’
However, the defendants through statement dated 15.01.2016 came with categorical statement that:
‘……. to decree the suit of the plaintiff in terms of prayers (i), (ii), and (v) provided the plaintiff shall pay total sale consideration of Rs.189,17,500/- (Rupees One Crore Eighty Nine lacs Seventy thousands Five hundred) to the defendants within two weeks from today as admittedly the earnest amount of Rs.25,00,000/- (Rupees Twenty Five lacs) has already been deposited by the defendants with the Nazir of this Court in compliance of order dated 23.4.2015’.
The filing of the above statement amounts to an admission of the claim of the plaintiff to extent of his claim of agreement, while the application of the plaintiff amounts to confining his claim to the extent of recovery of earnest money only therefore, same are heard together.
5. Learned counsel for plaintiff inter alia contends that since defendants have committed fraud, they being lawyers were legally bound to disclose all the facts but they concealed that; in suit for administration preliminary decree was passed and they were restrained from creating third party interest inspite of that they entered into an agreement hence such agreement is ab-initio void and can not be executed, on these submissions already this Court by order dated 23.04.2015 directed the defendants to deposit earnest money with the Nazir; that amount may be restored back to the plaintiff as plaintiff does not want to purchase this property. It is further contended that in case agreement was void there is series of decisions of apex Court and this Court that at any stage Court can restore all the benefits to the plaintiff as received by defendants in pursuance of subject matter agreement. On this proposition counsel has relied upon PLD 2010 Karachi 17 (Haji Abdul Karim & others vs. M/s. Florida Builders (Pvt.) Ltd, PLD 2009 Karachi 390 (Rashid Naseem through attorney vs. Mrs. Amnia Fahim & others), 1989 MLD 4951 (Islamic Republic of Pakistan & others vs. Muhammad Afzal & others), 1994 CLC 733 (Qureshi Muhammad Anwar & 6 others vs. S.A. Qureshi & 3 others), 1979 CLC 321 (Eastern Federal Union Insurance Company Ltd vs. Bawany Industries Ltd, Karachi), 1999 YLR 797 (Sultan vs. Muhammad Ramzan& another), 2009 SCMR 221 (Mustafa Kamal & others vs. Daud Khan & Others), 2010 CLC 1879 (Muhammad Sabir vs. Maj (Rtd) Muhammad Khalid Naeem Cheema & others).
6. On the other hand, learned counsel for defendants vehemently opposed and has contended that instant proposition is not applicable though restraining order was made, that was in the knowledge of the plaintiff, in fact no agreement was signed, except by oral understanding, the plaintiff paid earnest money having knowledge that suit for administration is pending, subsequently such suit has been disposed of and title is with defendants, they are ready to perform their part and suit may be decreed.
7. I have heard the respective parties and have also examined the available record. The proposition is revolving around the application of Section 65 of the Contract Act hence the same is referred hereunder for understanding and convenience:
“Obligation of person who has received advantage under void agreement or contract that becomes void :
65. When an agreement is discovered to be void, or when a contact becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.”
The provision is plain in its language and specifically about legal obligation of the person to restore or compensate the person, from whom any advantage is received under a void agreement or that agreement which becomes void. Before proceeding any further, it would be just and proper to first understand the term ‘void’ defined and discussed in the case, reported as 2011 SCMR 837, with reference to case law (PLD 1976 SC 258) as:
There is great looseness in the use of the words ‘void’ and ‘voidable’ and very often they are used interchangeably. Nevertheless there is a clear distinction between things ‘void’ and ‘voidable’ though the two terms are not infrequently used without special regard for the difference or distinction particularly where such distinction is of no consequence or where the attention of the Court is not particularly directed to this distinction. The expression ‘void’ in the strict or accurate sense means ‘absolutely null’ that is to say incapable of ratification or confirmation and of no effect whatever. The word ‘voidable’ on the other hand is something which could be avoided or confirmed and which is not absolutely void. In other words what is voidable has some force or effect, but which may be set aside or annulled for some error or inherent vice or defect. ‘ Thus that which is voidable operates to accomplish the thing sought to be accomplished until the fatal vice in the transaction has been judicially ascertained and declared’. A common place instance of a void act or transaction in the sense of an absolute nullity is an agreement by a person under a legal disability e.g a minor or a person of unsound mind. Such act is void ab initio and is incapable of ratification or confirmation. Law forbids the enforcement of such a transaction even if the minor were to ratify it after attaining majority. This is clearly distinguishable from a case in which a thing or an act is ‘relatively void’ which the law condemns as wrong to the individual concerned who can avoid it by appropriate proceedings. A common place instance of such transaction is that which is brought about by undue influence, fraud etc, which remains of full effect unless avoided by appropriate proceedings’
(Emphases provided)
8. In the instant matter, it was not the first stand of the plaintiff that he (plaintiff) was defrauded or that defendants had any legal disability at the time of verbal agreement rather plaintiff himself had sought a relief of Specific Performance whereby acknowledging competence and status of the defendants. However, he (plaintiff) took such stand later-on. At this point, it would be proper to refer the order dated 23.4.2015, passed by this Court in this matter, which is:
“1-2) At the outset, learned counsel for the plaintiff contends that defendants entered into an agreement with regards to the subject matter property as contemplated in para No.2 of the plaint. They received Rs.2.5 millions through pay order and thereafter plaintiff came to know that on same property already suit No.1174/2011 was pending and in that suit, injunction was granted by order dated 04.11.2011 whereby the defendants were restrained from creating any third party interest; thus, they have committed forgery, therefore, the amount received by them till further adjudication may be deposited with the Nazir.
On the other hand, learned counsel for the defendants contends that…… but plaintiff failed to comply with such part of agreement, hence they have forfeited such amount.
Since, learned counsel for the defendants has filed application under order VII Rule 11 CPC, it appears that in suit for administration, injunctive order was in existence and defendants sold out subject matter property during that period, thus, in peculiar circumstances, when parties are contesting their case, judicially proprietary demands defendants shall deposit earnest money of Rs.2.5 millions with the Nazir within one month. Nazir is directed to invest the same in government profitable scheme. This order would be subject to outcome of this suit; consequently both applications are disposed of. Needless to mention that entitlement of this amount would be subject to final judgment of this suit.”
(emphasis supplied).
The plaintiff pleads the act of concealment of injunctive order as ‘fraud’ which, per plaintiff, is sufficient to bring the agreement within meaning of ‘void’. I do not find myself in agreement to accept such proposition because, if accepted, it shall eliminate the object, scope and purpose of ‘voidable’ & ‘contingent contract’. The act of vendor, in no case, prejudice to the rights of the vendee to seek enforcement of his rights, including one of specific performance if vendor earns title even at later stage or recovery of compensation etc , if the vendor fails in perfecting title of the vendee, if there was a fixed time for such purpose. An ‘injunctive order’ , in law, does not hold the status of a ‘decree’ therefore, in no way, an ‘injunctive order of restraining one from creating third party interest’ shall make the agreement ‘void’ unless the vendor was not legally competent to enter into a contract at such time or was subsequently declared so. Further, the Contract Act or any other law does not specifically restrain a competent party in a lis even to enter into a contract except those, falling within meaning of Section 36 of Contract Act which reads as:
‘Agreement contingent on impossible events void. Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
In short, meaning of term ‘void’ cannot be expanded to one’s own suiting or choices but it shall remain confined to those acts / transactions which are absolutely ‘null’ that is to say incapable of ratification or confirmation and of no effect whatever because no rights and liabilities can be attached or arise out of a void contract. Thus, I would conclude that such act of concealment of pendency of suit or passing of an injunctive order may operate as ‘voidable’ and not ‘void’.
9. Let’s examine the same stand with reference to term ‘fraud’ which has been defined by Section 17 of the Contract Act, 1872 itself as :-
‘Fraud’ defined. ‘Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, (Compare S. 238, infra) with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-
1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
2) The active concealment of a fact by one having knowledge or belief of the fact;
3) A promise made without any intention of performing it;
4) Any other act fitted to deceive;
5) Any such act or omission as the law specially declares to be fraudulent;
Explanation. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that , regard being had to them, it is the duty of the person keeping silence to speak, (See S. 143, infra) or unless his silence is in itself, equivalent to speech.
A perusal of this definition makes it clear that the main ingredient of ‘fraud’ is the intention to deceive or to induce a person by misrepresentation or active concealment to enter into a contract on a false belief. (para-6, PLD 1977 Lah. 1377). It is also a matter of record that the defendants served the plaintiff with a legal notice dated 14th January, 2015 wherein concluding that:
“……therefore, in view of the above facts, circumstances and legal position, if you failed to pay the balance amount on or before 15th January, 2015, the receipt dated 18th September, 2014 containing the terms and conditions should be revoked for all times and the earnest amount received by us would stand forfeit and we should be well within our right to sale out the property to any third party.
However, you are requested to please make arrangement for payment of balance amount and produce before us the draft sale deed of each office premises so that the transaction be completed immediately.
(emphasis supplied)
The above act of the defendants was / is prima facie sufficient to establish that their act of entering into contract was not with an intention to deceive the plaintiff but they were ready to perform their part subject to payment of remaining consideration by the plaintiff as was / is their obligation within meaning of Section 37 of the Act. A silence or concealment of some immaterial fact (not prejudicing Section 10 of the Contract Act) shall not qualify the term ‘fraud’ more particularly when it does not stand in the way of performance of contract in due discharge of obligations of respective parties. Further, the act of serving said notice was even otherwise sufficient to establish that contract was / is perfect and defect, if any, after such notice was no more available with the plaintiff to use as an excuse to avoid his obligations, falling upon him within meaning of Section 37 of the Act. Reference to the case of Pakistan Industrial Development Corporation v. Aziz Qureshi (PLD 1965 (W.P) Karachi 202, wherein it is held that:
‘It is true that there is no principle of natural justice involved in canceling the contracts for an alleged breach, but it is also a settled principle that where a particular breach in a contract can be remedied without any corresponding injury to any person, a reasonable notice should be given to remedy it.’
(emphasis supplied)
Further, the Section 10 of the Contract Act, 1872 states that all agreements are contracts if they are made with the free consent of the parties competent to contract for lawful consideration and with a lawful object and are not expressly declared in the Act to be void. In the instant case, it is never the claim of the plaintiff that defendants are/were not competent to enter into contract; agreement was without free consent or that consideration of same (agreement) is illegal hence within meaning of the Section 10 of the Act, the agreement was / is valid and legal hence I find myself quite safe in saying that this plea of the plaintiff is of no help for him to take silence of the defendants in disclosing fact of injunctive order as sufficient enough to declare the agreement as ‘void’ particularly when agreement is still capable of enforcement and vendors are agreed for doing so.
10. In view of above discussion, it is pertinent to conclude that before insisting the provision of Section 65 of the Act one shall be required to establish that either agreement, at its time of execution, was void or it (agreement) became void subsequently i.e absolutely ‘null’, which is not the case in hand.
11. At this point, it is germane to mention that the law has nowhere left the vendor from a right in the event where vendee avoids his obligation while insisting restoration of advantage (earnest money) from vendor as it shall amount to place the vendee at an advantageous place which the law does not permit. The Section 38 of the Contract Act specifically addresses such situation while saying :
‘Effect of refusal to accept offer of performance. Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his right under the contract.
The later provision of said Act i.e Section 39 speaks about the ‘effect of refusal of party to perform promises wholly’ which includes a right of ‘forfeiting the earnest money’ within meaning of Section 55 of the Act. In the instant matter, the defendants did communicate their intention to perform their part while requesting the plaintiff to place draft deeds for immediate execution thereof but it was avoided by the plaintiff.
In the case of West Pakistan Tanks Terminal (Pvt.) Ltd. V Collector (Appraisement) 2007 SCMR 1318, it is held that:
‘10. (sic) The law is well-settled that one cannot be allowed to take advantage of his wrong act or fraud played by him and in fact applying the law applicable to the lawfully taking away of consignments from the bonded warehouse, if applied in such cases, would amount to placing a premium on the fraud played by an importer involved in the act of smuggling.
(emphasis supplied)
In case of Sheikh Allah Rakha v Sheikh Muhammad Yousaf (1990 MLD 1592), it is held that:
“15. Having concluded about the ownership rights of Allah Rakha the next question worth notice is as to whether the provisions of Cantonments Act or Rules can be construed having force of embargo on the right of Allah Rakha to make further transfer. The contracts are formed under the provisions of Contract Act. Section 10 of the Contract Act states that all agreements are contracts if they are made with the free consent of the parties competent to contract for lawful consideration and with a lawful object and are not expressly declared in the Act to be void. Section 23 ibid provides inter alia that the consideration or object of an agreement is lawful unless it is forbidden by law or is of such nature that if permitted it would defeat the provisions of any law.”
“19. The question remains as to whether in such a circumstance the respondent / plaintiff was entitled to refund of the earnest money. There is no dispute with the proposition that earnest money is the part of purchase price when the transactions move on. It is forfeited when the contract is breached by reason of fault or failure on the part of vendee. (Kunwar) Chiranjit Singh v Har Swarup AIR 1926 PC 1 is authority for the aforenoted proposition. The same rule was followed in the Trustees of Karachi v. Ghulam Ali Habib Rawjee PLD 1961 Kar. 625.
(emphasis supplied)
In case of ‘Bashir Hussain Siddiqui v PAN Islamic Steamship Co. Ltd. PLD 1967 Kar. 222’ it is held that:
‘In these circumstances the plea of the tonnage capacity of the shop appears to be an after thought. However, this circumstance by itself would not absolve the respondents to establish that they were always ready and willing to perform their part of the contract. In law, unless this fact is proved, a party is not entitled to claim any damages.
(emphasis supplied)
12. It is a matter of record that the plaintiff at no times submitted draft deeds nor showed his readiness to take title subject to payment of remaining consideration, hence he (plaintiff) in absence of such stand legally cannot take an exception to his own obligations. Moreover, plaintiff avoided his obligation with reference to plea of some oral understanding regarding payment of remaining consideration in 16 installments upto 15th January, 2016 and not upto 15th January, 2015 as mentioned in the receipt which legally cannot be accepted and even trial of such issue would not change the facts that:
i) date is categorically mentioned as on or before 15th January , 2015;
ii) the plaintiff, at no times (prior to service of notice of defendants) took such plea of incorrect mentioning of date for completion of agreement;
At this juncture, a reference to ‘receipt’ being material is made hereunder:-
‘Received from Mirza Shakir Baig the sum of Rs.25,00,000/-………………… admeasured 3290 square feet or thereabout which we have agreed to sell for a total consideration of Rs.189,17,500/- for all aforementioned three offices worked…. All the balance sale consideration of these three offices and two car parkings, amounting to Rs.1,65,37,500/- will be paid on or before 15th January , 2015 at the time of signing of sale agreements and related documents / sale deeds before the concerned sub-registrar, Karachi in favour of the nominee …… All upto-date dues, property tax, water & sewerage tax, KMC utility bills….. shall be cleared by us / sellers, including obtaining all necessary N.O.Cs, from the concerned departments. …’
The receipt, no where, speaks about payment of ‘remaining consideration’ in installments therefore, it shall not change the position. The operative part of the case of Elahi Bakhsh v. Muhammad Iqbal 2014 SCMR 1217 , being relevant to make such point clear, is referred hereunder:
‘The question that arises for the adjudication of this Court is whether an oral statement of a party to an instrument which varies or tends to vary its terms could be admitted into evidence? The answer to this question is a plumb no because Article 103 of Qanun-e-Shahadat Order 10 of 1984 excludes oral statement as between the parties to any such instrument or their representatives. The rationale behind this Article is that inferior evidence is excluded in the presence of superior evidence that an agreement finding expression in writing is an outcome of deliberate and well thought out settlement; that a party acknowledging a fact in writing is precluded to dispute it an that an agreement reduced into writing is immune from mischief, failure and lapse of memory. It, therefore, follows that oral statements of P.Ws 1 and P.Ws 2 which tend to vary the terms of the deed mentioned above are inadmissible in evidence. No conclusion could be drawn much less a judgment rendered on the bass of these statements. If these statements are excluded, we are left with bare words of the respondent. Bare words, we afraid, cannot dislodge the presumption of truth attached to a registered deed. Any finding based on such statements is no finding in the eye of law.
8. The argument that application of this Article can be attracted to the instrument executed between the parties to the litigation and not their witnesses being against the letter and spirit of the Article cannot be given any weight when the Article clearly provides ‘that no evidence of any oral agreement or statement shall be admitted as between the parties to any such instrument or their representative in interest for the purpose of contradicting, varying , adding to or subtracting from its terms’.
(emphasis supplied)
Thus, suffice to say that in peculiar circumstances of the instant case, the plaintiff is not entitled for restoration of earnest money.
13. Without prejudice to above, as the defendants still standing by their statement, in question, which does qualify an admission to the claim of the plaintiff to extent of agreement and such readiness of the defendants to perform their obligations even stands till date (much later to that of 15th January, 2016) which the plaintiff claimed to be target date . Therefore, I find it in all fairness to decree the suit of the plaintiff to extent of prayer clause (i), (iii) and (v) while dismissing the suit for rest of the prayers, but with note of caution that plaintiff shall have to obtain the clear title within a period of ‘one month’ and failure shall result in forfeiture of earnest money which, being deposited with Nazir, shall be returned to the defendants without notice to plaintiff. However, the failure of defendants to make title of plaintiff perfect on payment of remaining consideration shall result in restoration of such earnest money to plaintiff without prejudice to other available legal remedies. Accordingly Suit is decreed. Let such decree be drawn.
J U D G E
DATE: 15.01.2016
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When consent of any of the parties to a contract is caused by fraud ->
When consent of any of the parties to a contract is caused by fraud, mis-representation or mistake etc., it is not a free consent and under Section 19 of the Indian Contract Act such an agreement is a contract voidable at the option of the party whose consent was so caused or obtained. A party to a contract whose consent was so caused by fraud or mis-representation or mistake, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. In India, statutorily, therefore, the effect of fraud, mis-representation or mistake in any contract is to render the contract voidable at the instance of the party against whom fraud, mis-representation or mistake is committed. The party entitled to set aside or avoid the contract has option to affirm it, if he thinks fit. If the party does not affirm, it has another choice of avoiding the contract. When voidable contract is said to be avoided it does not mean that the contract never existed, but it would mean that it ceased to exist from the moment of avoidance. In the case of suppression of true facts or disclosure of untrue facts or non-disclosure of material facts, it cannot be said that there is no consent at all from the other party acting on such representation, but it can be said that the other party would not have consented if he had the facts before him. Therefore, voidable transaction until it is avoided is valid, and the things done under such contract cannot afterwards be undone. In other words, when a voidable contract is voided by the party affected thereby, avoidance takes effect from the time it is avoided and not from the date of the transaction. This position of Law, which is statutorily accepted in India, is also accepted by the Supreme Court in the case of East India Commission Company v. Collector of Customs . The Supreme Court accepted the principle that mis-representation does not make a contract non-est, but it makes the contract only voidable and such right of voiding the contract must be exercised promptly and until it is so exercised, the contract is valid and things done under it cannot afterwards be undone. It, thus, becomes clear that when contract of employment is procured by the party by committing fraud or misrepresentation or by adopting fraudulent means, the transaction is voidable at the instance of other party and such a transaction can always be voided and from the date it is avoided it becomes ineffective or non-est. It follows therefrom that the other party is required to take some action to avoid the contract and transaction does not, ipso-facto become void ab-initio. The other party cannot be permitted to state that the transaction is null and void from its inception and that it is not required to be voided. A positive act of avoiding the contract is required from the other party, and therefore, in my opinion, when the contract of employment is vitiated by fraud, misrepresentation or mistake, it being a voidable transaction action is required to be taken to avoid it by the other party to the contract and so long as such action is not taken the transaction continues.
GETTING PUBLIC JOB BY FRAUDULENT MANNER
Public administration and services under the Union of India or State in order to be upright, efficient and above board or suspicion must be manned by persons of good moral character. Those who seek entry to public employment by perpetrating fraud, misrepresentation, false representation, or by dubious means are, but for their reprehensible conduct not entitled to enter public employment. Had such persons not committed fraud or misrepresentation by suggestio vari or suppresio faisi or by non-disclosure of true facts or disclosure of facts which are false to their own knowledge or by partial non-disclosure or partial disclosure solely with a view to seek public employment they would not have got the entry in the public employment. The contract of employment would not have been entered into. Secondly, they would not have acquired status, and therefore, rights flowing from the Statutory Rules or Regulations, would not come to their rescue. The very first step towards entry into public employment is vitiated by their conduct. It may be noted that for such a conduct which has preceded the contract of employment the employer is not seeking to impose any penalty. The employer is merely exercising right given to him by law, namely, of avoiding contract. The employer on coming to know about the fraud perpetrated or misrepresentation practised by the employee wants to avoid the contract since it is avoidable at the instance of employer. For exercising such a right, for a conduct which has preceded the contract of employment, the employer has obvious right under the Law of Contract. The employer does not want to resort to its right or power under the Statutory Rules or Regulations. The Statutory Rules which provide for imposition of penalty for misconduct committed by the employee are, in my opinion, not required to be followed because it is not the exercise of penal or punitive power on the part of the employer but it is the exercise of right flowing from the Law of Contract, namely, that of avoiding the contract for fraud, misre-presentation practised by the employee while seeking entry into public employment. For such a power the source is not to be found in the Statutory Rules or Regulations. The source is also not to be found in Article 311(2) of the Constitution of India. The source is to be found in the power of one of the contracting parties under Section 19 of the Contract Act to avoid the contract when the contract is obtained by fraud, misrepresentation, mistake etc. I am, therefore, of the opinion, that there is no need for the employer, when the employer seeks to terminate or rescind the contract of employment on the ground that the contract is obtained by the employee by fraud, misrepresentation, mistake etc. to hold a regular departmental enquiry as contemplated by Article 311(2) of the Constitution of India or as contemplated by Statutory Rules/Regulations before imposing any penalty. The employer, in my opinion, in cases like present one, is not imposing any penalty. The employer is exercising his right to avoid the contract which is obtained by fraud, misrepresentation or mistake. His right is referrable to the period prior to the employee acquiring the status. It is a right which stems from the initial contract of employment because of which employee got entry into public employment. That initial contract of employment itself being vitiated because of fraud the employer gets right of avoiding the contract, and for such avoidance of contract, in my opinion, there is no need for the employer to follow the procedure prescribed by Article 311(2) of the Constitution of India or by Statutory Rules/Regulations. I, therefore, do not accept the submission of Mr. Vakharia. In my opinion, the respondent is not required to hold regular departmental enquiry for imposition of penalty stipulated by Panchayat Service (Discipline & Appeal) Rules. Such a contract of employment can be avoided by the employer simply by notice To show cause and opportunity to the employee to tender his explanation and his documentary evidence and after considering such explanation and evidence by positive decision of the employer to avoid the contract. Once such decision is taken in good faith considering the explanation of the employee the employer has exercised his right of avoiding the contract and public interest and public administration demands that such person is not permitted to pitch his case in an higher pedestal, than this.
Hiraben Jivanbhai Chaudhari vs R.C. Raval ( Gujarat High Court-22 June, 1992)-Equivalent citations: (1993) 1 GLR 66