Intended or not, an influence, or a dis-proportionate bearing of supplementary factors on the process of legal adjudication could result in a deviation from the set precedents of judicial thought. One such concept discussed here is Morality, as understood in common parlance. The other is the legal premise of Estoppel.

Morality, ethics, equity and Dharma :

Equity, an offspring of morality, is described as the quality of being fair, impartial, and equal. Equity is a system of law, a body of legal doctrines and rules developed to enlarge, supplement, or override a narrow rigid system of law. The roots of morality and the allied concepts of ethics and equity, in the Indian context, may be traced to the timeless principle of Dharma. For brevity sake, all these noble, lofty concepts are hereinafter sometimes collectively referred to under the banner of ‘Morality’.

Morality and law :

Morality on one hand and law on the other may or may not have commonalities at a given point of time; but there are certainly perceptible differences. While the purpose of both is to achieve an orderly society based on equitable discrimination, there are significant differences in the nature, scope, extent and administration of the two. Most importantly, all illegal activities may not qualify as immoral; all immoral activities are not per se illegal. To quote an example, the Supreme Court, in the case of Gherulal Parakh v. Mahadeodas Maiya and Others, (AIR 1959 SC 781), observed that the moral prohibitions in Hindu Law texts against gambling were not only not legally enforced, but were allowed to fall into desuetude.

Morality, for instance the concept of Dharma, is on one hand eternal, being fixed and sacrosanct in its basic principles; at the same time, in its application at a point of time or under a set of circumstances, it is evolving, inclusive and flexible, considering Kala (time), Desha (place) and Sandarbha (situation). Evolution and change are attributes applicable to law also. In the words of Roscoe Pound, a scholar, teacher, reformer, and Dean of Harvard Law School, “The law must be stable, but it must not stand still“. Pound strove to link law and society through his ‘sociological jurisprudence’ and to improve the administration of the judicial system and was viewed as a radical thinker for arguing that the law is not static and must adapt to the needs of society.

If so, does law include morality? If yes, to what extent?

The Indian Constitution incorporates in its preamble, justice, liberty and equality. The Directive Principles of State Policy are guidelines for creating a social order characterised by social, economic, and political justice, liberty, equality, and fraternity as enunciated in the Constitution’s preamble. Article 37 of the Constitution declares that these principles shall not be enforceable by any court, but are nevertheless fundamental in the governance of the country and it shall be the duty of the state to apply these principles in making laws, so as to establish a just society in the country. The Directive Principles of State Policy are guidelines to the Central and State governments of India, to be kept in mind while framing laws and policies. Thus, it may be said that the Indian Constitution and the legislations, statutes and enactments thereunder extensively embrace and comprehensively encompass within their folds, the principles of Dharma, morality, ethics, equity and fair play, and if a residue remains, it is intentional. Be it so, law, once codified by the Legislature is presumed to inherently take care of these cherished principles without requiring further additions.

Role of the judiciary:

If a statutory provision is open to more than one interpretation, the Court has to choose that interpretation which represents the true intention of the Legislature. Constitution entrusts the judiciary with great power to declare the limits of the Legislature and Executive; Courts can invalidate laws that run counter to the constitutional provisions. However, morality is neither primary nor decisive here.

Can immorality, actual, alleged or perceived, influence the determination of legality?

The reader is bound to conclusively answer in the negative, or rather, question the necessity of raising this issue, when the answer is well settled and accepted. There is certainly no need to give citations or other references to substantiate that as far as an act or omission is within the four corners of established law, it is immaterial whether the same confines itself to morality or not. However, simple as it may seem, there are notable instances when morality seems to deceptively taint a decision as to legality or otherwise. This may primarily be attributable to an appreciable and well-founded respect for morality which unintentionally but unfortunately blurs the decision-making process while determining legality.

Estoppel :

It may not be incorrect to say that Estoppel conceptually derives its existence from the myriad labyrinths of morality, at least partially. Estoppel is a legal rule that prevents somebody from stating or claiming a position inconsistent with the position previously stated or held out, especially when the earlier representation has been relied upon by others. As per the Stroud’s Judicial Dictionary of Words and Phrases, the word ‘Estoppe’ comes of a French word estoupe, from which comes the English word stopped, and it is called an estoppel, or conclusion. Summarising a host of decisions, the Stroud’s Dictionary says, regarding estoppel by conduct or representation, that the essential factors giving rise to an estoppel are :

(a) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation was made,

(b) An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation was made, and

(c) Detriment to such person as a consequence of the act or omission.

While estoppel is no doubt an offspring of English law, which was adopted by Indian law, innumerable instances can be found in ancient Dharma in Indian scriptures which extol the virtues of estoppel, especially when self-imposed. The popular acceptable disposition seems to be that once a position or stand is taken, the person so doing is bound thereby and shall ‘at any cost’, act and continue all future actions in accordance with such position or stand.

Estoppel at any cost — at the cost of illegality?

What if the primary position, which is sought to be adhered to following the rule of estoppel, is itself based on, or is alleged to be, or is a result of, an illegal act ? Adherence to estoppel in such a case could mean negation of legality. In all fairness, the bar of estoppel cannot be claimed, alleged or raised by a counter party or respondent who has himself committed illegal acts, or could be genuinely alleged to have done so. Whether such allegation of illegality is genuine or not is to be determined on the facts and circumstances of each case. Simply stated, people living in glass houses should not throw stones at others.

Recent Court rulings :

What if a party to a contract claiming the contract to be illegal on specific grounds, is barred by the Court from doing so, on a reasoning presumably based on an alliance of morality and estoppel?

Consider the recent ruling of the Bombay High Court in ICICI Bank Ltd. v. Sundaram Multi Pap Ltd., (Company Petition No. 248 of 2008). Firstly, in ascertaining whether an agreement in question was binding in spite of it not being signed by one party thereto, the Court has held that the absence of the signature is not significant, since the said agreement has not been disputed by the other party and has been acted upon by both parties. Thus, it may be rightly inferred that by not disputing the agreement and by acting thereunder, the other party has ‘held out’ a position and is therefore estopped from questioning its existence now.

However, that being so, another defense by the respondent Company, was that the agreement in question is illegal, void, violative of its Articles of Association and not binding on it. The Court observed that prima facie, these contentions do not appear to be bona fide or substantial, in spite of being well aware that the Company had already filed separate suit(s) in this regard which were pending. More importantly, such observation was arrived at, not by subjecting the agreement to the tests of legality, but on the following grounds:

(a) Resolution to generally execute agreements was passed by the Company

(b) Agreement is signed by the authorised officer of the Company

(c) The Company paid certain amounts and issued a cheque to the other party, and the other party also made a payment to the Company by crediting its bank account.

Further, the Court also directed the respondent Company to deposit the amount demanded from it by the petitioner.

Take another recent decision of the Madras High Court in Rajshree Sugars and Chemicals Ltd. v. Axis Bank Ltd. Mr. Justice V. Ramasubramanian, in his judgment, observed that the plaintiff claiming an agreement to be null, void, illegal or voidable had no qualms about the deal at the time of deriving a benefit or income therefrom, and compared the plaintiff to a horse which would open its mouth for food but close it for bridle.

By receiving certain benefits under an agreement or a contract, has the recipient party ‘held out’ that the same is legally binding? Even if he has so held out, does the same validate the agreement or contract merely by estoppel ? Stating that such recipient, having enjoyed benefits, is morally bound to perform his obligation under the agreement or contract, can it be said that the same is legally binding? Is legality to be determined here with reference to the statute book, case laws, investigation and evaluation, or by merely looking into estoppel, morality, or the actions of the parties like passing generic resolutions or making payments purportedly in mistake of law ?

Even applying the rules of morality and estoppel, the consistent principle as laid down in various decisions of Courts appears to be that the Rule of Estoppel would apply when a bona fide party to the agreement or contract has been misled by the position held out by the other. In the decisions discussed hereinabove, it cannot in any manner be said that the party receiving benefit under such agreement or contract in question has misled the opposite party in any manner. Moreover, receipt of benefit is a subsequent event post entering into the agreement or contract, whereas the agreement or contract is being questioned as being void ab initio, that is, from its very inception, without reference to such subsequent event.

To add to our inference, the Indian Contract Act, 1872 could be pressed into service. S. 65 of the said Act deals with the obligation of a person who has received advantage under a void agreement or a contract that becomes void. It simply states that when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage thereunder is bound to restore it, or to make compensation for it, to the person from whom he received it. This Section, which is based on equitable doctrine, provides for the restitution of any benefit received under a void agreement or contract. What if a counter is raised, that S. 65 would apply where the agreement is ‘discovered to be void’ or where the contract ‘becomes void’ and not to an agreement which is void from inception ? The Supreme Court, in the case of Tarsem Singh v. Sukhminder Singh, (AIR 1998 SC 1400) has categorically held that this argument cannot be allowed to prevail. Further, S. 30 of the Specific Relief Act, 1941, states that on adjudging the rescission of a contract, the Court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require.

Thus, to conclude, it is respectfully submitted that the legality or otherwise of an agreement or contract cannot be determined merely because a receipt of benefit thereunder, by default, binds the party to stick to morality and promissory estoppel. All that is required of such party is to return all benefits received. The relevant yardsticks to determine the fundamental issue as to the validity of an agreement or a contract would be to apply the requirements of S. 10 of the Indian Contract Act — free consent, competence, lawful consideration and lawful object. And of course, since the specific always overrides the general, such agreement or contract is to be cumulatively validated under all specific enactments, rules, regulations, guidelines or the like as may be applicable to it.

Authored By: K. Vijayshyam Acharya, Chartered Accountant

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