Illegality, as a defence, to deny claim of a party to an illegal agreement to enforce other party’s end of bargain has seen a lot of traction now days, especially in the foreign jurisdictions. Notable in this regard is the nine-bench decision of United Kingdom Supreme Court in the case of Patel v Mirza [2016] UKSC 42, which rejected the earlier approach which depended on whether or not the claimant had to plead the illegal agreement in order to succeed. Instead it adopted the approach summed up by Lord Toulson, who gave the leading judgment, at para 120: 

“The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system… In assessing whether the public interest would be harmed in that way, it is necessary (a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, (b) to consider any other relevant public policy on which the denial of the claim may have an impact and (c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts.”

The recent decision of Supreme Court of India, rendered in the case of Smt. Narayanamma v. Sri Govindappa (Civil Appeal Nos. 7630-7631 of 2019, decided on September 26, 2019) also has to deal with the illegality defence and appeared to have relied on the pre-Mirza position of whether a party could prove its case without relying on the illegal transaction.

Brief facts: 

An agreement to sell the impugned suit property was executed, in contravention of the statutory bar prohibiting such transfer. The purchaser had filed a petition in the Trial Court as the defendants did not come forward to execute the sale deed in respect of the agreement to sell. The Trial Court held that since the agreement was contrary to the statute, it was void in law and accordingly, the suit for specific performance of the contract was not maintainable. The aforesaid decision was overruled by both the Principal District and Session Judge, Bangalore and the High Court of Karnataka. The appeal was against the decision of the Karnataka High Court. 

Issues:  

1. If a court can accept a claim of the plaintiff, where the plaintiff is a party to an illegal transaction and if the Court can take Suo moto cognizance of the illegal transaction? 

2. In whose favour would be the balance of justice, where both the parties are guilty of participation in illegal transaction? 

Judgement: 

1. If a court can accept a claim of the plaintiff, where the plaintiff is a party to an illegal transaction and if the Court can take Suo moto cognizance of the illegal transaction? 

Two possibilities exist where the plaintiff is a party to an illegal transaction, i.e., (a) the plaintiff can rest his claim by only relying on the illegal transaction; and (b) the plaintiff can rest his claim on something else without relying on the illegal transaction. 

The Court relied on Kedar Nath Motani and Ors. Vs. Prahlad Rai and Ors. [(1960) 1 SCR 861] and held that where the plaintiff cannot rest his claim without relying upon the illegal transaction, the Court will dismiss the action based on the legal maxim ex turpi causa non oritur action, i.e., plaintiff would be unable to pursue legal remedy arising in connection with his own illegal act even when illegality is not pleaded by the defendant nor sought to be relied upon by him as a defence.   

2. In whose favour would be the balance of justice, where both the parties are guilty of participation in illegal transaction? 

The Court relied on Immani Appa Rao and Ors. Vs. Gollapalli Ramalingamurthi and Ors. [(1962) 3 SCR 739]  and held that according to the rule of law in relation to participators in a common crime, grant of relief will not be granted on the basis of the maxim in pari delictor potior est conditio defendentis et possidentis, i.e., both the parties are at equal fault but the condition of the possessor is better.  

Further, it was held that if decree was granted in favour of the plaintiff based on an illegal agreement which is hit by a statute, the Court will be rendering active assistance in enforcing the illegal agreement. Whereas, if the decree granted was in favour of the defendant, the Court will be only rendering passive assistance. While dealing with this issue, emphasis was laid on public interest and it was concluded that, rendering active assistance would be clearly and patently inconsistent with the public interest, whereas, providing passive assistance would be less injurious to the public interest.

This update has been contributed by Arka Majumdar (Partner) and Juhi Wadhwani (Associate).