Sarjoo Prosad, C.J. - (1.) This is a special appeal against the judgment and decree of Bhandari J, sitting single, confirming in second appeal the decision of the District Judge, Jaipur. Leave to appeal has been granted by the learned Judge.
(2.) The appeal relates to a suit filed by the plaintiff-respondent, The Maharaja Kishangarh Mills Ltd., for recovery of Rs. 3539/7/-from the defendant Municipal Committee, which is the appellant here. The plaintiff alleged that the Municipal Committee Madanganj had borrowed on 9-7-1947 a sum of Rs, 3,000/-and agreed to pay interest at the rate of 6 per cent per annum, after the loan had been duly sanctioned by the Mahkama Khas of the then Kishangarh State. Later the Municipal Committee Madanganj merged in the Municipal Committee Kishangarh and plaintiff averred that, by virtue of the merger, the defendant became liable to pay the aforesaid amount with interest. The defendant resisted the claim and its liability to pay the amount; but admitted that in any case the plaintiff could not recover more than Rs. 2,000/ which was the actual amount paid. By a subsequent amendment in the written statement the defendant further pleaded that the contract made on behalf of the Municipal Committee Madanganj was not executed and signed in conformity with the provisions of section 15 of the Kishangarh Municipalities Act (Act IV of 1943--hereinafter called the Act) and as such was not binding on the Municipal Committee Madanganj or on the defendant either. This defence found favour with the trial court which entirely dismissed the plaintiffs suit; but on appeal the learned District Judge, Jaipur decreed the claim for Rs. 2,000/- with interest Rs. 160/14, in all Rs. 2160/14. The decree has been confirmed by Bhandari J. and hence this appeal.
(3.) The only point which has been canvassed before us, as it was before the learned Judge, is that the contract for loan not being in conformity with section 15 of the Act, is not binding on the defendant. The section requires: "Every contract made by or on behalf of the Committee whereof the value or amount exceed Rs. 20/- shall be signed by the President. If a contract to which this section applies is executed otherwise than in conformity therewith it shall not be binding on the Committee." Admittedly in this case there was no contract in writing and on the terms of the above section, the contract as such cannot be enforced against the Committee. The question, however, which still falls to be answered is whether the plaintiff is entitled to recover the amount under section 65 of the Contract Act. Under section 7 of the Act, the Municipal Committee has power and was competent to enter into a contract for loan and the finding is that it did in fact take a loan of Rs. 2,000/- from the plaintiff. Therefore, as pointed out by the learned Judge, the competency of the Municipal Committee Madanganj to take the loan is not challenged. All that is challenged is the binding nature of the contract on the ground of non-compliance with Section 15 of the Act. It is also not disputed now that if the Madan-ganj Committee were liable, the defendant by virtue of the merger would be also liable. The rule of equity and justice requires that if in fact money has been paid to the defendant under an agreement, not otherwise unlawful, it should pay back the amount to the plaintiff even if for some reason the contract as such is not enforceable. The law safeguards against any unlawful enrichment at the cost of an innocent party and provides for restitution in all such cases. These equitable principles are embodied in sections 65 and 70 of the Contract Act and relief should be granted to the extent that these provisions justify. Section 65 of the Contract Act runs as follows: "When an agreement is discovered to be void or when a contract 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 section postulates two classes of cases, where relief can be granted: (1) when an agreement is discovered to be void; or, (2) when a contract becomes void. In both these cases, if a person has received any advantage under such agreement or profited by such agreement or contract, he is bound to restore it or to make compensation for it to the person from whom such advantage or profit has been received. The section contains an equitable rule of restitution applicable to all such cases. Section 2 (g) of the Contract Act defines that an agreement not enforceable by law is void, as distinguished from an agreement enforceable by law, which matures into a contract Similarly, section 2 (j) defines that a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Now, an agreement which may be quite lawful in itself may become unenforceable by law due to various circumstances, viz: where there is a formal defect in the execution of a document in which the agreement, according to law, is to be embodied; or, where there has been a failure of consideration due to mistake or other supervening causes. It is true that on the language of section 65 and for the application thereof the agreement must be "discovered to be void" and not where it is void from its very inception to the knowledge of both parties; but it is well known that where a person honours an agreement, otherwise lawful, and discharges his obligations thereunder, the agreement though not enforceable by law may still continue to be good and operative. It is only where he refuses to honour the agreement and the other party has notice thereof that the agreement may be "discovered to be void", because no longer then it is enforceable by law. As it has been observed in some of the decisions bearing on the point, even an agreement which is ab initio void may attract the operation of section 65, provided there is no lack of capacity on the part of the parties to enter into the agreement and the parties are not in pari delicto, or in other words where the consideration for the agreement is not unlawful or immoral. Similar considerations would apply to a contract when it ceases to be enforceable. It is not necessary to anticipate all the circumstances in which an agreement is "discovered to be void" or a contract becomes void. These have to be determined on the facts of each case. The authorities on the point are too numerous to mention. Most of them have been amply reviewed by Sinha J. in Ram Nagina Singh v. Governor General in Council, AIR 1952 Cal 306 and in Dharmeswar Kalita v. Union of India, (S) AIR 1955 Assam 86, a decision to which I was myself a party. The above decision was followed with approval in Dominion of India v. Preety Kumar Ghosh, AIR 1958 Pat 203. In the present case, the agreement itself is not intrinsically illegal or unlawful. The parties were competent to enter into the agreement. The Municipal Committee was authorised to take the loan from the plaintiff and the consideration itself was a legal and valid consideration. The only defect was in regard to the form in which the agreement had to be reduced under Section 15 of the Act in order to be enforceable as a contract.;