Gajendragadkar, C. J. - (1.) These two appeals arise from two suits Nos. 5 of 1947 and 32 of 1951; and the main point which they raise for our decision is whether the two documents executed by the appellants and two of the respondents are unenforceable as being opposed to public policy under S. 23 of the Indian Contract Act (hereinafter called the Act'). The trial Court has answered this question in the affirmative, while the High Court of Kerala has taken a contrary view.
(2.) Poulo Varghese and Poulo Thommi who are the sons of Ouseph Poulo were carrying on trade in hill produce at Alwaye and in the course of their business, they had borrowed from the branch of the Catholic Union Bank Ltd., at Alwaye large amounts. In that connection, they had pledged goods with the Bank as security for the loan and the same had been deposited in a godown, the key of which remained with the Bank. It appears that on the 10th February, 1947, the Officers of the Head Office of the Bank inspected the godown and it was discovered that there was considerable shortage of the goods pledged. Thereupon, the Secretary of the Bank lodged a complaint with the Police that Ouseph Paulo and his two sons who had dealings with the Bank as well as Paulo Joseph, another son of Ouseph Paulo, had colluded with the local Agent of the Bank and had fraudulently removed a substantial part of the pledged articles from the godown. The complaint also alleged alternatively that if the goods had not been fraudulently removed, then the security offered by Paulo Varghese and Paulo Thommi was grossly inadequate to cover the large amounts advanced to them, and that was the result of cheating. The police registered this case and investigations began. At that time the parties settled their differences and the two documents in question were executed.
(3.) The criminal complaint was filed on the 13th February and the First Information Report was made on the 16th February, 147. On the 22nd February, a hypothecation bond (Ext. 26) was executed by Ouseph Paulo, his wife, his three sons and the will of another son in favour of the Bank for Rs. 30,000/-. This bond covered immovable properties belonging to the executants. On the 27th February, 1947, another document was executed by the same parties in favour of the Bank for Rs. 35,000/-, this document was called Kollappirivu Karar (Ext. B). On the same day a receipt was executed by Paulo Varghese and Poulo Thommi which showed that the goods in the godown were valued at Rs. 10,000/ - and were surrendered to the Bank in partial satisfaction of the debts due from them to the Bank. This was followed by a hire-purchase agreement by which the car owned by Poulo Thommi was transferred to the Bank and the same was conveyed back to him on a hire-purchase agreement; the value of this car was taken to be Rs. 5,000/-. The total amount due from Poulo Varghese and Poulo Thommi to the Bank was Rs. 80,024-5-9. As a result of the transactions in which the parties entered, Rs. 10,000/- were made good by surrendering to the Bank the goods in the godown; Rs. 5,000/- by transferring the car; Rs. 30,000/- and Rs. 35,000/- by the hypothecation deed and the Karar respectively; that left a balance of Rs. 24-5-9 which was paid in cash. After this transaction had thus been concluded, on the 28th February the Secretary of the Bank made a statement before the police that the Bank's claim had been settled and that he and the Managing Director of the Bank was satisfied that no goods had been removed from the godown as alleged in the complaint and that in collusion with the Agent of the Bank, the debtors Poulo Varghese and Poulo Thommi had cheated the Bank by over-valuing the goods pledged, but that no further action was necessary to be taken in that behalf. In consequence, the criminal proceedings were dropped. That, in substance, is the nature of the transactions, the character of which falls to be determined in the present appeals.;