Chettur Sankaran Nair, J.@mdashThe short question for determination is, whether an agreement to withdraw the proceedings under the Insolvency Act is unenforceable in law.
2. We shall briefly refer to the factual backdrop, to bring into sharp focus, the question for consideration. One Joseph Mariamma, was a subscriber to chitties conducted by the Respondent-Plaintiff. She had executed Exts. A-1 to A-15 bonds on her behalf, and on behalf of the firm of which she was a partner. Rs. 33,496.95 was outstanding from her. On 6th November 1971, she executed a simple mortgage of her properties, in favour of the Appellants for a consideration of Rs. 56,300. Upon this, the Respondent initiated proceedings, in I.P. 9/71 to adjudge the said Mariamma an insolvent, alleging fraudulent preference and act of insolvency. The Appellants were impleaded to the proceedings, with a prayer to annul the hypothecation bond. In the meantime, one Thomas Chacko moved the Land Tribunal, claiming tenancy right, in respect of the mortgaged properties. While so, on 10th December 1973, the Appellants and Respondent, entered into an agreement (Ext. A-19), the Respondent agreeing to withdraw I.P. No. 9/71 and the Appellants agreeing to file a suit to enforce the mortgage and satisfy the claim of the Respondent. I.P. No. 9/71 was dismissed and thus came to an end. But, the Appellants did not file a suit for over three years. Later they filed a suit without the knowledge of the Respondent. Nor did they pay the Plaintiff. Shorn of the details, the Respondent-Plaintiff, then filed the suit for damages, from which arises the appeal.
3. The Appellants-Defendants contested the suit on various grounds. The central issue was the enforceability of Ext. A-19 agreement. The suit was decreed as prayed for, and hence the appeal.
4. Counsel for Appellants rested his case solely on the ground aforementioned. He would say that Ext. A-19 agreement is unenforceable in the face of the prohibition in Section 23 of the Contract Act. It is alternately called an agreement ''forbidden by law'', or ''opposed to public policy''. To draw sustenance for this argument, counsel refers to Section 14 of the Insolvency Act (Act 2 of 1956). Section 14 states that ''no petition whether presented by a debtor or by a creditor, shall be withdrawn without the leave of the Court'' (underlining supplied). It is contended that an agreement to withdraw, is therefore forbidden by law. To our mind, the contention is too transparent to stand scrutiny. We do not read the section as imposing any prohibition against withdrawal. The modalities of withdrawal are indicated, and withdrawal is conditioned by leave of the Court. Otherwise put, leave of Court is a condition precedent to withdrawal. This is not in the realms of prohibition, or illegality.
5. It is then urged, that the agreement is against public policy, embodied in Section 14. Considerations of policy may be involved, such as protection of creditors/debtors. But, prohibition is not engrafted in the section. As noticed earlier, there is no prohibition against withdrawal and the section is only regulatory in character. The argument reads into the section, what is alien to it.
6. Besides, the argument presupposes a disposition to do unlawful acts. When there is an agreement to do an act, it is presumed that the agreement is to do it lawfully. An agreement to sell property is normally understood as an agreement to sell, paying the requisite stamp duty. Likewise, an agreement to make payment is understood as an agreement to pay in legal tender, even without reciting so. A variety of acts are done in the normal course, and it is not necessary to make exhaustive recitals of all normal incidents. The absence of such does not indicate that it is intended to be done in violation or departure of the mode of doing it. A presumption of illegality cannot be raised except where it is warranted by rules relating to presumption. Familiar are such presumptions, under the Essential Commodities Act, the Prevention of Corruption Act and similar enactments. A presumption of legality-not a presumption of illegality is the rule. It is so indicated in
...there was an implied covenant to do all things necessary to effect such transfer which would include an application to the Revenue Officer to sanction the transfer....
The Mysore High Court, considering the scope of Section 23 of the Indian Contract Act in Neminath Appayya v. Jamboorao AIR 1966 Mys 154 observed:
A bare possibility of such transgression, if there be also a possibility of performance without such transgression, does not invalidate the agreement. It is a familiar principle that the presumption of law is in favour of the legality of a contract and that if it reasonably admits of two meanings or two modes of performance one legal and the other not, the interpretation which the Court should prefer is one which supports it and makes it operate, the burden being on the person who impeaches its validity to establish illegality.
We are in respectful agreement with this view. Unless ex facie illegal, an agreement cannot be presumed to be against the prescriptions or tenor of Section 23 of the Indian Contract Act.
7. The Supreme Court in Lachoomal v. Shri Radhey Shyam A.I.R 1971 S.C. 2230 noticed with approval the Mysore case. Their Lordships observed:
What makes an agreement, which is otherwise legal, void is that its performance is impossible except by disobedience of law.
8. The law in England is also no different. In Chitty on Contracts (25th Edition para 1191) it is stated:
...if the contract be reasonably susceptible of two meanings or two modes of performance, one legal and the other not, the legal burden of proving its illegality is undischarged and that interpretation is to be put upon the contract which will support it and give it operation.
9. The mere possibility of transgression of law, is no ground to say that the agreement is opposed to Section 23 of the Indian Contract Act. The agreement must be shown to be ex facie illegal, or capable of being performed only by unlawful means. The presumption-more precisely the interpretation-leans in favour of legality it is well to remember the counsel of Jessel, M.R. in Printing and Numerical Registering Co. v. Sampson (1875) L.R. 19 Eq. 462.
It must not be forgotten that you are not to extend arbitrarily those rules which say that a given contract is void as being against public policy, because if there is one thing which more than Anr. , public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be forced by Courts of justice. Therefore, you have this paramount public policy to consider-that you are not likely to interfere with freedom of contract.
10. For the reasons aforesaid, we are of opinion that the agreement Ext. A-19, is not unenforceable, either by reason of a prohibition, or being opposed to public policy.
The appeal must therefore fail. In the result, we affirm the judgment and order of the Court below, and dismiss the appeal with costs.
