1. SHAFIUR RAHMAN, J.-Leave to appeal was granted to the unsuccessful defendant vendees in a suit for specific performance to examine whether in view of the mandatory provisions of clause (4) of para. 25 of the Lands Reforms Regulation of 1959 (hereinafter referred to as the Regulation), the Court could grant a decree for specific performance the execution of which may violate the aforesaid provision of the Regulation.
2. The respondents 3 to 9 owned 30 kanals of agricultural land in Chak Jia Musa, Tehsil and District Lahore. By an agreement to sell dated 29-10-1966 they contracted to sell 28 kanals 15 marlas for a sum of Rs, 27,000 to the plaintiff-respondents 1 and 2 and realized a sum of Rs, 4,000 as earnest money. Before the sale could take place, it was realised that the agreement could not be perfected into a sale as such a sale would violate prohibition contained in clause (4) of para. 25 of the Regulation. The negotiation for the sale of the remainder area (1 kanal 5 mar/as) failed. The respondents 3 to 9, therefore, mortgaged the land with appellant No 2 with a view to return the earnest money which according to the appellant was in fact returned and this agreement rescinded. The entire holding was thereafter sold by respondents 3 to 9 in favour of appellant No, 1 on 23-4-1967 for a sum of Rs, 30,000. The plaintiff-respondents instituted on the 24th of October, 1967 a suit claiming specific performance of the agreement dated 29-10-1966 denying that the agreement had been rescinded or the earnest money had been returned. The following issues were framed on the pleadings of the parties- "(1) Whether agreement dated 29-10-1966 is hit by para. 25 of M. L. R. No, 64 of West Pakistan Land Reforms Regulation, 1959 if so with what effect.
(2) Whether the agreement dated 29-10-1966 was subsequently cancelled.
(3) Whether the earnest money of Rs, 4,000 was paid back to the plaintiffs.
(4) Whether defendant No, 8 is a bona fide mortgagee for consideration without notice.
(5) If issue No, 4 is not proved what is the effect of the mortgage on the suit.
(6) Whether defendant No, 9 is a bona fide purchaser for consideration without notice.
(7) Whether the plaintiffs are entitled to specific performance of the agreement.
(8) If issue No, 7 is found in the negative whether plaintiffs are entitled to specific performance of the agreement.
(9) Relief."
3. ' The trial Court held that none of the provisions of the Regulation, not even clause (4) of para. 25 prohibited the entering into of an agreement to sell. It also found that it was not cancelled nor earnest money refunded. The appellants were- found neither to be the bona fide mortgagees nor purchasers without notice. The plaintiffs were found entitled to the decree of specific performance of the agreement and it was granted to them on their depositing a sum of Rs, 23,000 in Court.
4. ' The appellants filed their first appeal in the High Court which too was dismissed on 7th of July, 1976 upholding these findings.
5. ' The learned counsel for the petitioner contended that, though agreement to sell is different from the sale itself clause (4) of para. 25 of the Regulation created an incapacity in the vendor and he could not even enter into an agreement with regard to a transaction which in the end could be violative of this clause and in any case such an agreement could not be enforced.
6. ' The learned counsel for the respondents on the other hand has contended that the restriction contained in clause (4) of para. 25 being a prohibition or a restriction on the free enjoyment of one's own property must be construed strictly and in the favour of the owner. If the alienation is prohibited then, the prohibition cannot be extended further to include within its ambit an agreement to sell.
7. ' It is not disputed that at the time when the agreement to sell was executed neither the vendor nor the vendees under that agreement were aware that the agreement was in violation of any law or that any portion of the property owned by the vendor was being left out. At that time, it appears, the vendor had the impression that his total onwership of agricultural land in the village amounted to 28 kanals and 15 marlas and he contracted to sell the whole of it for Rs, 27,000. It subsequently transpired that he had left one kanal 15 marlas of land and its exclusion from the agreement to sell made the performance of the contract offensive to para. 25(4) of Land Reforms Regulation, 1959.
8. As the ownership of the vendor did not exceed 30 kanals he was holder of an area less than subsistence holding and the prohibition which applied to him is as reproduced hereunder :- "25. Restrictions on alienation of holdings.-
(4) No person owning an area equal to or less than, a subsistence holding shall be allowed to alienate by sale, mortgage, gift or otherwise any part of his holding Provided that such a person may alienate his entire holding, or, in the case of a holding which is less than a subsistence holding, sell any part of his holding to other owners of the same village, deh or mauza.
9. ' Nothing in this paragraph shall apply to land whether cultivable or otherwise which is bona fide required for the purpose of building thereon, and any tenant -'in possession of such land who refuses to quit after notice may be evicted under the. Order of the Deputy Commissioner."
10. This statutory prohibition and none else prohibited the alienation. Even this law provided certain exclusions and exceptions. It did not make the B agreement to sell itself void. An agreement to sell is different from the sale or the alienation itself. An agreement to sell will not be hit by the express words of paragraph 25(4) .
11. ' The learned counsel for the petitioner attempted to read in the prohibition contained in paragraph 25 an incapacity of the vendor to enter into such an agreement and relied for his proposition on the decision in Pandit Krishna Sharma v. Seth Rishabha Kumar (1). In that case a guardian of minor had contracted to sell his property and the contract was sought to be enforced against the minor.
12. It was found that on the principle of absence of mutuality in the contract it was not enforceable against the minor. Such is not the case before us.
13. ' The question of such agreements where the sale itself is prohibited unless certain conditions were satisfied was considered by this Court in Abdullah Khan and others v. Nisar Muhammad Khan and others (2). An argument as has been advanced in this case was taken note of and dealt with in the following words - "The contention of learned counsel for the appellants is that whenever sale of land is prohibited an agreement for sale without sanction should also be regarded as prohibited on grounds of public policy. We find little force in this contention. If there is some condition precedent to the validity of a transfer it is open to the parties to enter into an agreement subject to compliance with the condition precedent. The attack on the agreement for sale on the ground of public policy could only succeed if it was shown that the intention of the agreement was to defeat a law. If the parties that enter into an agreement for sale contemplate only a sale with the requisite sanction they are not making any effort to defeat the law."
14. The crucial date to be taken into consideration is the date when the sale or alienation actually takes place. If at that stage any of the prohibi-c tions contained in para. 25 comes into play then the authority, whichever it be, is under a statutory duty not to give effect to the alienation. In the present case when the matter was brought to the Court for the specific performance of the contract, no such violation of the statutory requirement was likely to take place because the original Vendor had parted with his entire property leaving nothing for himself and the enforcement of the agreement between him and the vendees did not involve violation of provisions of paragraph 25 of the Land Reforms Regulation.
15. The questions concerning the illegality of a contract are governed by certain well-known principles.
16. One such principle finds mention in the judgment of Atkin L. J. In Anderson v. Daniel (3) in the following words- "The question of illegality in a contract generally arises in connection with its formation, but it may also arise, as it does here, in connection with its performance. In the former case, where the parties have agreed to something which is prohibited by Act of Parliament, it is indisputable that contract is unenforceable by either party. And I think that is equally unenforceable by the offending party where the illegality arises from the fact that the mode of performance adopted by the party performing it is in violation of some statute, even though the contract as agreed upon between the parties was capable of being performed in a perfectly legal manner."
(1) AIR 1939 Nag. 265 (2) PLD 1965 SC 690
(3) (1924) 1 K B 138 .
17. ' This principle was further elaborated in the following words in the ease of S. John Shipping Corporation v. Joseph Rank Lid. (1).
18. "There are two general principles. The first is that a contract which is entered into with the object of committing an illegal act is unenforceable. The application of this principle depends upon proof of the intent, at the time the contract was made, to break the law; if the intent is mutual the contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who is proved to have it The second principle is that the Court will not enforce a contract which is expressly or impliedly prohibited b statute. If the contract is of this class it does not matter what the F intent of the parties is; if the statute prohibits the contract, it is unenforceable whether the parties meant to break the law or not. A significant distinction between the two classes is this. In the former class you have only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract; if a contract is deliberately made to do a prohibited act, that contract will unenforceable. In the latter class, you have to consider not what acts the statute prohibits, but what contracts it prohibits; but you are not concerned at all with the intent of the parties ; if the parties enter into a prohibited contract, that contract is unenforceable."
19. ' A more elaborate discussion on the legal points under consideration in this appeal finds mention in Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. (2) at 179 and 182 in the following words :- "The effect of illegality upon a contract may be three-fold. If at the time of making the contract there is an intent to perform it in a unlawful way, the contract, although it remains alive, is unenforced able at the suit of the party having that intent ; if the intent is held I common, it is not enforceable at all. Another effect of illegality is to prevent a plaintiff from recovering under a contract if in order to prove his rights under it he has to rely upon his own illegal act ; he may not do that even though he can show that at the time of making the contract he had no intent to break the law and that at the time of per romance he did not know that what he was doing was illegal The third effect of illegality is to avoid the contact ab initio and that arise if the making of the contract is expressly or impliedly prohibited by statute or is otherwise contrary to public policy It is familiar principle of law that if a contract can be performed in on of two ways, that is, legally or illegally, it is not an illegal contract, though it may be unenforceable at the suit of a party who chooses to perform it illegally. That statement of the, law is meaningful if the contract is one which is by its terms open to two modes of per for trance ; otherwise it is meaningless."
20. Applying the principles approved by this Court and the principle applicable to the contracts generally, it follows that the agreement to sel itself was not violative of the law. The contract made was capable being performed in one of the two ways, that is, legally and also illegally. The plaintiffs seeking its enforcement, which has been allowed by the tw Courts, was not, in performing it or enforcing its performance doing an act prohibited by the law. It is an admitted position that the entir property of the vendor stands sold and there is no indication that if the
(1) (1957) 1 Q B 267 (2) (1961) 2 W L R 17Q contract is specifically performed for which the appellants are responsible any infraction of the law will take place.
21. ' In the circumstances, the decision of the Courts is unexceptionable. The appeal, therefore, has no merit and it is dismissed. No order as to costs.