Tuesday, October 09, 2007

Contract Act_Practical Problems_29

M/s Ganguly & Co., Calcutta, entered into a contract with the General Manager of the Indian Railways at Calcutta for the construction of a bridge and received an advance of Rs. 10 lakhs for the same. They did not complete the work within time and the Railways terminated the contract. This contract was found to be void from its inception'for not being in conformity with the Constitution of India". The Indian Railways want to recover the advantage given to the contractor. Will it succeed? Discuss.

"The problem is based on the provisions of Section 21 read with Section 24 and Section 65 of the Indian ContractAct. Section 21 and 24 read together, provide that a contract based on mistake as to any law in force in India is not voidable and where any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreements is void.

Thus, the agreement between M/s Ganguly & Co., Calcutta with the Indian Railways is void (and not voidable) being not in conformity with the Constitution of India and both the parties are under a common mistake of law.

A void agreement does not create any legal obligations or confer any rights. However, Section 65 provides for restitution. It reads "where 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."

In view of the above, Indian Railways can recover the advance of Rs. 10 lakhs paid to M/s Ganguly & Co. [Jigi Bhai v. Nagji; Gulabchand v. Fulbai; State of Orissa v Raj Ballaie]

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