Memorandum of understanding — Void contract : Civil Court cannot refuse to entertain suit even if based on void contract.

[ Govind Goverdhandas Daga and Mohan Brindavan Agrawal,
Field Mining and Ispat Ltd., (2009) Vol. 111(8) Bom L.R. 3524]

Plaintiffs No. 1 and 2 entered into Memorandum of
Understanding with Defendant No. 2 who was a director of Defendant No. 1
company. As per the MOU it was agreed that each family was to hold equal
shares in Defendant No. 1 company either directly or through family members.

The Plaintiffs paid Rs.3 lacs each as share application
money. As defendants failed to abide by the MOU the plaintiffs filed suit for
specific performance and permanent injunction. Defendants filed application
under Order 7 Rule 11 CPC for rejection of plaint contending that Memorandum
of Understanding was never acted upon by the parties and was entered into by
the director i.e. Defendant No. 2 in his individual capacity. Defendant
No. 1 had nothing to do with the said memorandum of understanding, no cause of
action disclosed and suit hit by provisions of Companies Act and Coal Mines
Act. Civil Judge rejected the plaint.

On further appeal the Court held that even if we assume
that the Memorandum of Understanding is void and illegal yet there was no law
which prohibits institution of suits and taking of its cognisance. Assuming
Memorandum of Understanding to be void that still does not prohibit plaintiffs
from approaching the court and deciding the question of its validity on merit.

The Court will always have to consider the facts, evidence
and the law to find out if the contract between the parties is enforceable or
not. The court may ultimately refuse its specific performance and may also
hold the contract to be void but there is nothing which prohibits the civil
court from entertaining such a suit.

Thus a party to void contract is still entitled to
institute a suit for enforcement of the contract and in the alternative to
pray for refund of the money.