The Delhi Cloth and General Mills Co.,
Ltd. Vs. Harnam Singh & Ors  INSC 32 (21 April 1955)
BOSE, VIVIAN JAGANNADHADAS, B.
SINHA, BHUVNESHWAR P.
CITATION: 1955 AIR 590 1955 SCR (2) 502
Private International Law-Law applicable to
contractual obligations-English and Continental schools of thought-Lex situs
and "Proper Law" of contract-Partition of India-Post partition debtAction
for recovery where lies-Analogy of banking transactions and insurance
claims-Place of primary obligation-Debt, whether property-Sections 3 and 130 of
Transfer of Property Act-Evacuee property laws-Pakistan (Protection of Evacuee
Property) Ordinance, 1948 (XVIII of 1948)-Pakistan (Administration of Evacuee
Property) Ordinance (XV) 1949-Whether confiscatory in nature.
During the years in question cloth was
rationed at Lyallpur, then a part. Of the Punjab in undivided India, and sales could only be made to government nominees and other authorised persons.
The plaintiffs, resident in Lyallpur, were the government nominees, The 403
defendant company, with its head office at Delhi had a branch office and mills
at Lyallpur, and supplied the plaintiffs with cloth from time to time in
accordance with the government quota through its branch manager at Lyallpur.
Their dealings lasted some 4 or 5 years prior
In accordance with their contract the
plaintiffs left a security deposit of Rs. 1,000 with the defendant's branch
manager at Lyallpur, and deposited further sums of money with him from time to
time at Lyallpur. The defendant supplied the plaintiffs with their quota of
cloth against those deposits. There was thus a running account between the
parties in which the balance was sometimes in the plaintiffs' favour and
sometimes against them; when against, they paid the defendant interest on the
"overdraft". The goods had to be supplied at Lyallpur and all moneys
were paid there. The accounts were kept at Lyallpur though copies were sent to
the defendant's head office at Delhi.
In 1947, when India was partitioned, Lyallpur was assigned to Pakistan. The plaintiffs thereupon fled the country and entered India as refugees. They settled in -Delhi and thus became "evacuees" according to
a Pakistan ordinance. At that time there was a balance of Rs. 11,496-6-6 in the
plaintiffs' favour. They accordingly made a demand at Delhi for payment of this
sum and for return of their security deposit.
In the meanwhile the Pakistan Government
issued an ordinance (1) vesting all evacuee property in the Custodian of
Evacuee Property in Pakistan (2) prohibiting the 'payment of money to evacuees;
and (3) requiring all moneys payable to, or claimable by, evacuees to be paid
to the Deputy Custodian of Evacuee Property in Pakistan. Payments so made were
to operate as a discharge from further liability to the extent of the payment.
Breach of this law was punishable as an offence.
The Deputy Custodian demanded payment from
the defendant of the moneys owing to the plaintiff. After some correspondence
and demur, the payment was made as required.
The defendant pleaded this as a defence to
Held: (1) Lyallpur was the place of primary
obligation because under the contract the balance remaining at its termination
was to be paid there and not elsewhere, accordingly the demand for payment made
at Delhi before a demand and refusal at Lyallpur was ineffective;
(2) That the elements out of which the
contract to pay arose were most densely grouped at Lyallpur, so Lyallpur was
the natural seat of the contract and the place with which it had its closest
and most real connection. Accordingly, the "proper law of the
contract" was the Lyallpur Law;
(3) Under the English doctrine also the situs
of the debt was Lyallpur; and so 404 (4) either way, the Lyallpur law applied
(5) as it obtained at Lyallpur at the time when performance was due because a
" proper law" intended as a whole to govern a contract is
administered as a "living and changing body of law", accordingly,
effect is given to any changes occurring in it before performance is due;
(6) a "debt" being a chose in
action is "property" within the meaning of the Pakistan Ordinance and
so, (7) the money was rightly paid to the Deputy Custodian and that operated as
a good discharge and exonerated the defendant from further liability.
But quaere, whether different conditions
would not arise in a case where no payment is made and the defendant has no
garnishable assets in Pakistan out of which the West Punjab Government could
realise the debt out of the defendant's property there.
(8)The provisions of the Pakistan ordinance
relevant to the case are not opposed to the public policy of India and so can
be relied on as a defence to an action of this nature.
Mount Albert Borough Council v. Australasian
Temperance, etc. (1938 A.C. 224), Bonython v. Commonwealth of Australia (1951
A.C. 201 at 219), Bank of Travancore v. Dhirt Ram (69 I.A. I at 8), New York
Life Insurance v. Public Trustee ( 2 Ch. 101 at 119), Rex v. Lovitt (1912
A.C. 212), Joachinsons v. Swiss Bank Corporation ( 3 K.B. 110), Arab Bank
v. Barclays Bank (1954 A.C. 495 at 531), Fouad Bishara v. State of Israel
( 1 A.E.R. 145). Re.
Chesterman's Trusts [(1923] 2 Ch. 466 at
478), Be. Banque Des Marchands De Moscou ( 2 A.E.R. 746), Odwin v.
Forbes (1817 Buck 57) and Re. Munster (
1 Ch. 268), referred to.
CIVIL APPFLLATE JURISDICTION: Civil Appeal
No. 200 of 1954.
Under Article 133 of the Constitution and
section 109 of the Code of Civil Procedure from the Judgment and decree dated
the 6th December 1952, of the Circuit Bench of the Punjab High Court at Delhi
(Weston C.J. and Bhandari J.) in Regular First Appeal No. 72 of 1952, arising
out of the Judgment and Decree dated the 14th day of April 1952, of the Court
of Subordinate Judge, Delhi in Suit No. 657 of 1950.
N. C. Chatterjee, (Tarachand Brijmohanlal and
B. P. Maheshwari, with him) for the Appellant.
R. S. Narula, for the Respondent, 405 1955.
April 21. The Judgment of the Court was delivered by BosE J.-The defendant appeals.
The plaintiffs were the partners of a firm
known as Harnam Singh Jagat Singh. Before the partition of India they carried
on the business of cotton cloth dealers at Lyallpur which is now in Pakistan.
The defendant is the Delhi Cloth and General
Mills Co. Ltd.
It is a registered company carrying on
business at Delhi and other places and has its head office at Delhi. One of the
places at which it carried on business before the partition was Lyallpur.
The plaintiffs' case is that they carried on
business with the defendant company for some three or four years before 1947
and purchased cloth from the company from time to time.
In the course of their business they used to
make lump sum payments to the defendant against their purchases.
Sometimes these were advance payments and at
others the balance was against them. When there was an adverse balance the
plaintiffs paid the defendant interest: see the plaintiff Sardari Lal as P. W.
On 28-7-1947 the account stood in the
There was a balance of Rs. 79-6-6 lying to
their credit plus a deposit of Rs. 1,000 as security. On that day they
deposited a further Rs. 55,000 bringing the balance in their favour up to Rs.
The defendant company delivered cloth worth
Rs. 43,583-0-0 to the plaintiffs against this amount at or about that time.
That left a balance of Rs. 11, 496-6-6. The
suit is to recover this balance plus interest.
The claim was decreed for Rs. 12,496-6-6 and
this was upheld on appeal to the High Court. The defendant appeals here.
The defendant admits the facts set out above
but defends the action on the following ground. It contends that when India was
partitioned on 15-8-1947, Lyallpur, where these transactions took place and
where the money is situate, was assigned to Pakistan.,. The plaintiffs fled to
India at this time and thus 406 became evacuees and the Pakistan Government
froze all evacuee assets and later compelled the defendant to hand them over,
to the Custodian of Evacuee Property in Pakistan.
The defendant is ready and willing to pay the
money if the Pakistan Government will release it but until it does so the
defendant contends that it, is unable to pay and is not liable. The only
question is, what are the rights and liabilities of the parties in those circumstances?
The amount involved in this suit, though substantial, is not large when
compared with the number of claims by and against persons in similar plight.
The defendant itself is involved in many similar transactions. A list of them
appears in Ex. D-11. Mohd Bashir Khan, D.W. 1, says that the total comes to Rs.
1,46,209-1-9. The defendant has accordingly chosen to defend this action as a
The further facts are. as follows. At the
relevant period, before the partition, cloth was rationed and its distribution
controlled in, among other places, the Punjab where Lyallpur is situate.
According to the scheme, quotas were allotted to different areas and the
manufacturers and suppliers of cloth could only distribute their cloth to
retailers in accordance with those quotas, and dealers in those areas could
only import cloth up to and in accordance with the quotas allotted to them. If
the suppliers themselves had a retail shop or business in a given area, then
the quota for that area was divided between the supplier and a Government
quota-holder or quota-holders called the nominated importer or importers. The
local agency of the suppliers was permitted to import up to the -portion of the
quota allotted to it in that area and the suppliers were obliged to give the
balance of the quota to the Government quota-holder or holders. The plaintiffs
were the Government quota-holders for Lyallpur and the defendant company also
carried on business there through the General Manager of the Lyallpur Mills.
It is admitted that the defendant owns these
mills but it is a matter of dispute before us whether the mills are a branch of
the defendant company; but 407 whatever the exact status of the Lyallpur mills
may be, it is clear from the evidence and the documents that the General
Manager of these mills conducted the defendant's cotton business at Lyallpur.
It seems that the details of the cloth
distribution scheme for Punjab, in so far as it affected the defendant company,
were contained in a letter of the 24th October 1945 from the Secretary, Civil
Supplies Department, Punjab. That letter has not been filed and so we do not
know its exact contents but reference to it is found in a series of letters
written by the defendant company from Delhi to the District Magistrate at
Lyallpur. Those letters range in date from 3-11946 to 19-4-1947: (Exs. P-5 to
P-12). They are all in the same form, only the figures and dates differ. It
will be enough to quote the first, Ex. P-5. It is dated 3-1-1946 and is from
the Central Marketing Organisation of the defendant company, the Delhi Cloth
and General Mills Co.
Ltd. It is written from Delhi to the District
Magistrate, Lyallpur, and is as follows:
"The District Magistrate, Lyallpur.
Re: Cloth Distribution Scheme.
Dear Sir Ref:Letter No. 15841-CL-(D)-45/8342
of 24th Oct. 1945 from Secretary, Civil Supplies Deptt. Punjab Govt., Lahore.
Kindly note that we have allotted 28 bales
for your district for the month of January 1946. Out of this a quantity of 18
bales will be despatched to our Retail stores in your district/State and the
balance of 10 bales will be available for delivery to your nominated importer.
We shall be obliged if you kindly issue
instructions to your nominated importer to collect these goods from us within
15 days of the two dates for delivery fixed, namely by the 20th of January and
5th of February 1946 respectively. It may be noted that the first half quota
will lapse in case delivery is 52 408 not taken by you by the former date and
the second half will lapse if not taken by the latter date.
Yours faithfully, D.C. & Gen. Mills Co.,
In each case a copy was sent to the
plaintiffs marked as follows:
"Copy to nominated importer:Jagat Singh
Harnam Singh, Cloth Merchants, Lyallpur".
The Indian Independence Act, 1947 was passed
on 18-7-1947 and the district of Lyallpur was assigned to Pakistan subject to
the award of the Boundary Commission. Then followed the partition on 15-8-1947
and at or about that time the plaintiffs fled to India. This made them evacuees
according to a later Ordinance. But before that Ordinance was promulgated the
Assistant Director of Civil Supplies, who was also an Under Secretary to the
West Punjab Government, wrote to the defendant's General Manager at Lyallpur
(the General Manager of the Lyallpur Cloth Mills) on 17-2-1948 and told him
that"The amount deposited by the non-Muslim dealers should not be refunded
to them till further orders". (Ex. D-1).
The defendant did all it could, short of
litigation, to protest this order and -to try and get it set aside. Its General
Manager at Lyallpur wrote letters to the Assistant Director of Civil Supplies
on 14-4-48, 9-8-48 (Exs. D-2 and D-4) , 23-4-49 (Ex. D-7) and 6-6-49 (Ex. D-8),
but the replies were unfavourable. On 30-4-48 the Assistant Director said that
"in no case" should the sums be refunded (Ex. D-3) and on 1-1 1-48
directed that these amounts should be deposited with the Custodian of Evacuee
Property (Ex. D-5). This was in accordance with an Ordinance which was then in
force. Later, on 8-11-48, the General Manager received orders from the Deputy
Custodian that the moneys should be deposited with the Deputy Custodian(Ex.
D-6) and on 23-6-49 these orders were repeated by the Custodian (EX.D-9).
Meanwhile, the plaintiffs, who by then had
shifted 409 to Delhi, made a series of demands on the defendant in Delhi for
payment. These are dated 3-1-49 (Ex. P.W. 4/4), 27-149 (Ex. P.W. 4/1), 11-3-49
(Ex. P.W. 4/3) and 26-3-49 (Ex. P.W. 4/2). The defeddant's attitude is summed
up in its letter to the plaintiffs dated 12-2-49 (Ex. P-3). The defendant said
that its had received orders from the West Punjab Government, through the
Assistant Director of Civil Supplies, not to make any refunds without the
orders of the West Punjab Government.
On 15-10-1949 the Ordinance of 1948 was
replaced by Ordinance No. XV of 1949 (Ex. D-26) but that made no difference to
the law about evacuee funds and properties.
On 4-7-1950 the plaintiffs served the
defendant with a notice of suit (Ex. P-14). This notice was forwarded to the
defendant's General Manager at Lyallpur by the defendant's Managing Director in
Delhi urging the General Manager to try and obtain the sanction of the West
Punjab Government for payment of the money to the plaintiffs; and on 27-7-1950
the defendant wrote to the plaintiffs saying"We confirm that the sum of
Rs. 11,496-6-6 and Rs. 1,000 are due to you on account of your advance deposit
and security deposit respectively with our Lyallpur Cotton Mills, Lyallpur, and
the sum will be refunded to you by the said Mills as soon as the order of
prohibition to refund such deposits issued by the West Punjab Government and
served upon the said Mills is withdrawn or cancelled, and that your claim shall
not be prejudiced by the usual time limit of three years having been exceeded'
The defendant's reply did not satisfy the
plaintiffs, so they instituted the present suit on 16-12-1950.
After the suit, the defendant's Managing
Director wrote personally to the Joint Secretary to the Government of Pakistan
on 2-4-1951 but was told on 21-4-1951 that the matter had been carefully
examine and that the money must be deposited with the Custodian (Ex. D-25). A
second attempt was made 30-4-1951 (Ex. D-24) and the Joint Secretary was again
approached. Soon after, an Extraordine 410 Ordinance was promulgated on
9-5-1951 (Ex. D-27) exempting "cash deposits of individuals in banks"
from the operation of the main Ordinance. But the Joint Secretary wrote on
2-6-1951 that this did not apply to private debts and deposits and again asked
the defendant to deposit the Money with the Custodian (Ex. D-23). Finally, the
Custodian issued an order on 6-11-1951 directing that the deposits be made by
the 15th of that month, "failing which legal action will have to be taken
against you". (Ex. D-10). The money was deposited on 15-11-1951 on the
last day of grace (Ex. D-12).
The first question that we must determine is
the exact nature of the contract from which the obligation which the plaintiffs
seek to enforce arises. The sum claimed in the suit, aside from the interest,
is made up of three items:
(1)Rs. 79-6-6 outstanding from a previous
(2)Rs. 11,496-6-6 being the balance of a sum
of Rs. 55,000 deposited on 28-7-1947; and (3) Rs. 1,000 as security.
The three items appear to be linked up but
we' will, for the moment, concentrate on the largest, the deposit of Rs.
55,000. Both sides have spoken of it as a
"deposit" throughout but we will have to examine its exact nature
because deposits are of various kinds and it will be necessary to know which
sort this was before we can apply the law.
Unfortunately, the evidence is meager and
scrappy, so we have been obliged to piece much disjointed material together to
form an intelligible pattern. It is admitted that the distribution of cloth in
this area was controlled by the Government of Punjab (in undivided India) at
all material times. It is also admitted that the plaintiffs were, what were
called, "Government nominees" for Lyallpur. In the plaint the
plaintiffs also called themselves the "reserve dealer". This term has
not been explained but the use of these words and the words "nominated
importer", indicates that the plaintiffs occupied a privileged ]position.
The letters (Exs. P-5 to P-12), on 411 which the plaintiffs relied very
strongly, also point to that; Ex. P-5, for example, shows that the defendant
was obliged to give 10 bales out of a quota of 28 for that area to the
plaintiffs under the orders of the Punjab Government and could only keep 18 for
its own retail stores in the month of January 1946. In April the defendant was
allowed to keep all 28 but in July the distribution was 35: 25 in the
plaintiff's favour. In September, November (1946) and April 1947 it was half
and half. In February and March 1947 it was 10 : 26 and 29 : 26 for the
plaintiffs and the defendant's stores respectively.
Now, ordinarily, a privilege has to be paid
for and it seems that the price of this privilege was (1) payment of a security
deposit of Rs. 1,000 and (2) payment of a second deposit against which cloth
was issued from time to time in much the same way as a banker hands out money
to a customer against deposits of money in a current account, only here the
payments were issues of cloth instead of sums of money.
We draw this inference from what we have said
above and from the following facts:
(1) Both sides have called the payment a
"deposit" in their pleadings;
(2) The plaintiffs speak of receiving goods
"against this deposit" (paragraph 3 of the plaint) and Mohd. Bashir
Khan (D.W. 1) of delivery being made "against this advance";
(3) The plaintiff Sardari Lal (P.W. 3) says
that the parties have been carrying on dealings for 3 or 4 years and that
"advances used to be made to the mills from time to time. Sometimes our
balance stood at credit";
(4) Sardari Lal says that when their balance
was on the debit side, they paid the defendant's interest but the defendant
paid no interest when the balance was in the plaintiffs' favour. (This is the
position when there is an overdraft in a bank);
(5) There was a balance of Rs. 79-6-6
standing in the, plaintiffs' favour when the deposit of Rs. 55,000 was made;
(6) The plaintiffs said in their letter (Ex.
P.W. 4/1) 412 to the defendant that they had a "current account" with
the defendant in which a sum of Rs. 11,496-6-6 was in "reserve
account". This figure of Rs. 11 ,496-6-6 is made up by including the old
balance of Rs. 79-6-6 in this account;
(7) In their letter Ex. P-14 the plaintiffs
said that they had "deposited" money in the plaintiffs' account at
Lyallpur "as reserve dealers", against that they received goods
leaving a balance of Rs. 11,496-6-6. Again, this figure includes Rs. 79-6-6.
All this shows that the payment of Rs. 55,000
was not just an advance payment for a specified quantity of goods but was a
running account very like a customer's current account in a bank. The only
matter that can be said to indicate the contrary is the fact that the defendant
has listed this money in Ex. D-11 under the head "Purchaser's
advance". But the mere use of this term cannot alter the substance of the
transactions any more than the mere use of the word "deposit". The
fact that the parties choose to call it this or that is, of course, relevant
but is not conclusive, and in order to determine the true nature of a
transaction it is necessary to view it as a whole and to consider other
factors. But in this case we need not speculate because the plaintiffs have
themselves explained the sense in which the term "Purchasers advance
account" is used. In their statement of the case which they filed here,
they say" The defendants maintained a 'Purchasers advance account' in
their books at Delhi. The plaintiffs used to pay the defendants advance amounts
against which cloth was supplied and the balance had to be adjusted
But the banking analogy must not be pushed
too far. The stress laid by the parties on the terms "Government
nominees", "nominated importer" and Preserve dealer", both
in the correspondence and in the pleadings and evidence, suggests that the
defendant was dealing with the plaintiffs in their capacity of "Government
nominees" and that, in its turn, imports the condition that the dealings
would stop the moment the plaintiffs ceased to occupy that pri413 vileged
position. As we have seen, the import of cloth was controlled by the Punjab
Government at all relevant times with the result that the defendant could not
sell to anybody it pleased. The sales had to be to the Government nominees.
Therefore, if Government withdrew their
recognition, the defendant would not have been able to sell to the plaintiffs
any longer and it is fair to assume that the parties did not contemplate a
continuance of their relationship in such an eventuality. But, as this was not
a definite contract for the supply of a given quantity of goods which were to
be delivered in installments but a course of dealings with a running account,
it is also reasonable to infer that the parties were at liberty to put an end
to their business relationship at anytime they pleased by giving due notice to
the other side and in that event whichever side owed money to the other would
have to pay. But, either way, the place of performance would, in these
circumstances, be Lyalipur.
We say this because all the known factors
were situating in Lyallpur. The plaintiffs were the Government nominees for
Lyallpur and they were resident there. The defendant carried on business there
and the goods had to be delivered at Lyallpur and could not be deliverer]
elsewhere, and so performance was to be there. The accounts were kept at
Lyallpur, and though copies appear to have been forwarded to Delhi from time to
time, the books were situate there and the Lyallpur office would be the only
place to know the upto the minute state of the accounts. In the circumstances,
it is reasonable to assume, as in the case of banking and insurance (matters we
shall deal with presently), that on the termination of the contract the balance
was to be paid at Lyallpur and not elsewhere. That localises the place of
This also, in our opinion, imports another
factor. The defendant in Delhi would not necessarily know of any change of
recognition by the Lyallpur authorities. The correspondence with the Collector
indicates that the Government nominee cleared the goods from the defendant's
Lyallpur godowns under the orders of the District Magistrate. If, therefore,
the 414 nominee was suddenly changed, intimation of this fact would have to be
given to the defendant at Lyallpur and not at Delhi, otherwise there would be a
time lag in which the defendant' Lyallpur office might easily deliver the goods
to the plaintiffs as usual despite withdrawal of the recognition. Everything
therefore points to the fact that the notice of termination would have to be
given at Lyallpur and the obligation to return the balance would not arise
until this notice of termination was received. That obligation would therefore
necessarily arise at Lyallpur.
The plaintiffs' learned counsel argued very
strongly that the defendant's Lyallpur business was carried on from Delhi and
that the accounts were kept there, that there was no branch office at Lyallpur
and that Lyalipur had no independent local control of the business. He relied
on the letters written by the defendant to the District Magistrate, Lyallpur,
about the allotments of quotas (Exs. P-5 to P-12) and also on Ex. D-7, a letter
written by the defendant's General Manager at Lyallpur to the Deputy Custodian
of Evacuee Property at Lyallpur in which he says that a " Complete list
showing the list of all non-Muslims falling under item (3) with the amount to
be paid has been asked for from our Head Office and will be submitted as soon
Counsel contended that the Lyallpur people
bad so little to do with the accounts that they were notable to supply even a
list of the persons who dealt with them. they had to find that out from Delhi.
These matters should have been put to the
defendant's witnesses. Ex. D-7 was written in reply to a letter from the Deputy
Custodian of Evacuee Property. That letter is Ex. D-6 and in it the Deputy
Custodian refers to some earlier correspondence with the Under Secretary to the
West Punjab Government, Lahore, which has not been filed. When we turn to the
list that was eventually supplied from Delhi (Ex. D-1 1) we find that it
relates to accounts from allover Pakistan such as, Multan, Peshawar, Lahore,
Sialkot, Rawalpindi and even Karachi and Sukkar. Obviously, a local office like
the Lyallpur office would not be in 415 a position to -supply that sort of
information. The defendant's accountant at Lyallpur, Sewa Ram (P.W. 4), says
that"Purchasers' deposits at Lyallpur were not recorded in the books of
the defendant at Delhi but statements used to be despatched from there to
Delhi. An account book was prepared from statements received from Lyallpur.
That book is known as 'Reference Book' ".
Presumably, that would also be the practice
of the other branch offices, so the head office would be the only place from
where a general overall picture (which appears to be what was asked for) could
Now, the plaintiffs resided at Lyallpur at
all relevant times and the defendant carried on business there through a local
General Manager. We do not know where the contract was made but we do know that
the plaintiffs contracted in a special capacity that was localised at Lyallpur,
namely as the Government nominees for Lyallpur. We know that the goods were to
be delivered at Lyallpur and could not be delivered anywhere else. We know that
there was a running account and that that account was kept at Lyallpur, and we
have held that the 'debt" did not become due till the defendant was given
notice at Lyallpur that the business relationship between the parties had
terminated. The termination came about because of acts that arose at Lyallpur,
namely the assignment of Lyallpur to the newly created State of Pakistan and
the flight of the plaintiffs from Lyallpur which made further performance of
the primary contract impossible. The only factors that do not concern Lyallpur
are the defendant's residence in India and the demands for payment made in
Delhi. The fact of demand is not material because the obligation to pay arose
at the date of termination and arose at Lyallpur, but if a demand for payment
is essential, then it would, along the lines of the banking and insurance cases
to which we shall refer later, have to be made at Lyallpur and a demand made
elsewhere would be ineffective. On these facts we hold that the elements of
this contract, that is to say, the contract 53 416 out of which the obligation
to pay arose, were most densely grouped at Lyallpur and that that was its
natural seat and the place with which the transaction had its closest and most
real connection. It follows from this that the "proper law of the contract",
in so far as that is material, was the Lyallpur law.
We have next to see when notice 'to close the
account and a demand for return of the balance was made and where. The
plaintiff Jagat Singh (P.W. 5) says that he made a written demand in October
1947. But the earliest demand we have on record is Ex. P.W. 4/4 dated 3-1-1949.
It is understandable that the plaintiffs, who had to flee for their lives,
would have no copies of their correspondence, but it is a matter for comment
that the demand which is filed (Ex. P.W. 4/4) does not refer to an earlier
demand or demands. The defendant was asked to produce all the correspondence
because the plaintiffs had lost their own files. The defendant produced all we
have on record and no suggestion was made that anything had been suppressed.
Consequently we are not prepared to accept
the plaintiffs' statement and we hold that there was no demand before 3-11949.
Another point is that the earlier demand,
even if made, could not have been made at Lyallpur. The plaintiff Jagat Singh
says he made the demand to the defendant's Managing Director. He resides in
Delhi and the plaintiffs had by then fled from Pakistan. Therefore, the demand
could not have been made at Lyallpur, and apart from those demands, there is no
other notice of termination, so, technically, the defendant would have been
justified in declining to pay on the strength of a demand made in Delhi. The
same defect attaches to Ex. P. W. 4/4. However, we are fortunately absolved
from the need to base on so technical a ground.
Now at the date of the demand the Pakistan
Ordinance (Ex. D-26) was in force and under it the defendant was prohibited
from paying the money to the plaintiffs who were evacuees according to Pakistan
laws. The defendant was directed, instead, to deposit the money with the Deputy
Custodian of Evacuee 417 Property. This was done on 15-11-1951 (Ex. D-12) and
the deposit was made along with other similar deposits.
We now have to determine the legal
liabilities which arise out of these facts. This raises complex questions of
private international law, and two distinct lines of thought emerge. One is
that applied by the English Courts, namely, the lex situs; the other is the one
favoured by Cheshire in his book on Private International Law, namely, the
"proper law of the contract".
The English approach is to treat the debt as
property and determine its situs and then, in general, to apply the law that
obtains there at the date when payment is due. But the difficulty of the
English view is that they have different sets of rules for ascertaining the
situs, with the result that the situs shifts from place to place for different
purposes, also that it is determined by intention. Thus, it can be in one place
for purposes of jurisdiction and in others for those of banking, insurance,
death duties and probate. The situs also varies in the cases of simple contract
debts and those of speciality.
That a debt is property is, we think, clear.
It is a chose in action and is heritable and assignable and it is treated as
property in India under the Transfer of Property Act which calls it an
"actionable claim": sections 3 and 130.
But to give it position in space is not easy
because it is intangible and so cannot have location except notionally and in
order to give it notional position rules have to be framed along arbitrary
Cheshire points out in his book on Private
International Law, 4th edition, pages 449 to 451 that the situs rule is not
logical and leads to practical difficulties when there is a succession of
assignments because it is not possible to fix the situation of a debt under the
situs rule in one place and only one place. Speaking, of that Cheshire, quoting
Foote, where Foote says that the assignment of a chose in action arising out of
a contract is governed by the "proper law of the contract"
paraphrases Foote thus at page 450418 "If we understand him correctly, the
appropriate law is not the 'proper law' (using that expression in its
contractual sense) of the assignment, but the proper law of the original
transaction out of which the chose in action arose. It is reasonable and
logical to refer most questions relating to a debt to the transaction in which
it has its source and to the legal system which governs that transaction. One
undeniable merit of this is that, where there have been assignments in
different countries, no confusion can arise from a conflict of laws, since all
questions are referred to a single legal system".
The expression the "proper law of the
contract" has been carefully analysed by Cheshire in Chapter VIII of his'
In Mount Albert Borough Council v.
Australasian Temperance and General Mutual Life, Assurance Society(1) Lord
Wright defined it at page 240 as "that law which the English or other
Court is to apply in determining the obligations under the contract", that
is to say, obligation as contrasted with performance.
Lord Wright drew the distinction between
obligation and performance at page 240. In a later case, Lord Simonds described
it as "the system of law by reference to which the contract was made or
that with which the transaction has its closest and most real connexion".
Bonython v. Commonwealth of Australia(2).
Cheshire sets out the definition given by
some American Courts at page 203 and adopts it:
"It is submitted that, at any rate with
regard to the question of valid creation, the proper law is the law of the
country in which the contract is localized. Its localization will be indicated
by what may be called the grouping of its elements as reflected in its
formation and in its terms. The country in which its elements are most densely
grouped will represent its natural seat the country with which the contract is
in fact most substantially associated and in which lies its natural seat or
centre of gravity".
(1) 1938 A.C. 224, (2) 1951 A.C. 201, 219.
419 This involves two considerations. The
first is whether the proper law is to be ascertained objectively or whether
parties are free to fix it subjectively by ranging over the world and picking
out whatever laws they like from any part of the globe and agreeing that those
laws shall govern their contract. Cheshire points out at page 202 that
"the subjective theory may produce strangly unrealistic results".
It is also obvious that difficulties will
arise if the contract is illegal or against public policy according to the laws
of the country in which it is sought to be enforced though lawful according to
the laws of the country which the parties choose: see Lord Wright in Mount
Albert Borough Council v. Australasian Temperance, etc. Society(1) at page 240.
Cheshire prefers the view of an American Judge which he quotes at page 203"Some
law must impose the obligation, and the parties have nothing whatsoever to do
with that, no more than with whether their acts are torts or crimes".
The contract we are considering is silent
about these matters. There is no express provision either about the law that is
to obtain or about the situs. We have therefore to examine the rules that
obtain when that is the case.
The most usual way of expressing the law in
that class of case is to say that an intention must be implied or imputed.
In the Bank of Travancore v. Dhrit )Ram(2),
Lord Atkin said that when no intention is expressed in the contract the Courts
are left to infer one by reference to considerations where the contract was
made and how and where it was to be performed and by the nature of the business
or transaction to which it refers. In the Mount Albert Borough Council case(1),
Lord Wright put it this way at page 240"The parties may not have thought
of the matter at all.
Then the Court has to impute an intention, or
to determine for the parties what is the proper law which, as just and
reasonable persons, they ought or would have intended if they had thought about
the question when they made the contract".
(1) 1988 A.C. 224.
(2) 69 I.A. 1, 8.
420 But , to us, it seems unnecessarily
artificial to impute an intention when we know there was none, especially in a
type of case where the parties would never have contracted at all if they bad
contemplated the possibility of events turning out as they did. In our opinion,
what the Courts really do, when there is no express provision, is to apply an
objective test, though they appear to regard the intention subjectively, and
that is also Cheshire's conclusion at page 201 where, after reviewing the
English decisions, he says" In other words, the truth may be that the
judges, though emphasising in unrestricted terms the omnipotence of intention,
in fact do nothing more than impute to the parties an intention to submit their
contract to the law of the country with which factually it is most closely
If driven to a choice, we would prefer this
way of stating the law but we need not decide this because, so far as the
present case is concerned, the result is the same whether we apply the proper
law of the contract or the English rules about the lex situs. It may be that in
some future case this Court will have to choose between these two views but the
question bristles with difficulties and it is not necessary for us to make the
choice here. All we wish to do here is to indicate that we have considered both
and have envisaged cases where perhaps a choice will have to be made.
We gather that English judges fall back on
the lex situs and make rules for determining the position of a debt for
historical reasons. Atkin, L. J. said in New York Life Insurance Company v.
Public Trustee(1) that the rules laid down in England are derived from the
practice of ecclesiastical authorities in granting administration because their
jurisdiction was limited territorially.
"The ordinary had only a jurisdiction
within a particular territory, and the question whether he should issue letters
of administration' depended upon whether or not assets were to be found within
his (1)  2 Ch. 101, 119.
421 jurisdiction, and the test in respect of
simple contracts was: Where was the debtor residing?........ the reason why the
residence of the debtor was adopted as that which determined where the debt was
situate was because it was in that place where the debtor was that the creditor
could, in fact, enforce payment of the debt".
(See also Dicey's Conflict of Laws, 6th
edition, page 303). The rules, therefore, appear to have been arbitrarily
selected for practical purposes and because they were found to be convenient.
But despite that the English Courts have
never treated them as rigid. They have only regarded them as primafacie
presumptions in the absence of anything express in the contract itself: see
Lord Wright's speech in Mount Albert Borough Council case (1) at page 240.
Also, many exceptions have been engrafted to meet modern conditions.
Atkin, L. J. draws attention to one in New
York Life Insurance Company v.Public Trustee(2) at page 120 where he
says"therefore, cases do arise where a debt may be enforced in one
jurisdiction, and the debtor, being an ordinary living person, resides
So also Lord Wright in Mount Albert -Borough
Council case(1) at page 240"It is true that, when stating this general
rule, there are qualifications to be borne in mind, as for instance, that the
law of the place of performance will prima facie govern the incidents or mode
of performance, that is, performance as contrasted with obligation".
and at page 241 he says" Again,
different considerations may arise in particular cases, as, for instance, where
the stipulated performance is illegal by the law of the place of
And so also Lord Robson in Rex, v. Lovitt(3)
at page 220"It cannot mean that for all purposes the actual situation of
the property of a deceased owner is to be (1) 1938 A.C. 224. (2)  2 Ch.
(3)1912 A.C. 212.
422 ignored and regard had only to the
testator's domicile, for executors find themselves obliged in order to get the
property at all to take out ancillary probate according to the locality where
such property is properly recoverable, and no legal fiction as to its
'following the owner' so as to be theoretically situate elsewhere will avail
And he says at page 221 that these rules are
only "for certain limited purposes".
In banking transactions the following rules
are now settled: (1) the obligation of a bank to pay the cheques of a customer
rests primarily on the branch at which he keeps his account and the bank can
rightly refuse to cash a cheque at any other branch: Rex v. Lovitt(1) at 219,
Bank of Travancore v. Dhrit Ram(2) and New York Life Insurance Company v.
Public Trustee(3) at page 117; (2) a customer must make a demand for payment at
the branch where his current account is kept before he has a cause of action
against the bank: Joachimson v. Swiss Bank Corporation(4) quoted with approval
by Lord Reid in Arab Bank Ltd. v. Barclays Bank(5). The rule is the same
whether the account is a current account or whether it is a case of deposit.
The last two cases refer to a current
account; the Privy Council. case (Bank of Travancore v. Dhrit Ram(2)) was a
case of deposit. Either way, there must be a demand by the customer at the
branch where the current account is kept, or where the deposit is made and
kept, before the bank need pay, and for these reasons the English Courts hold
that the situs of the debt is at the place where the current account is kept
and where the demand must be made.
This class of case forms an exception to the
rule that a debtor must seek his creditor because, though that is the general
rule, there is nothing to prevent the parties from agreeing, if they wish, that
that shall not be the duty of the debtor and, as Lord Reid explains in the Arab
Bank case(5) at page 531, a contract of current account necessarily implies an
(1)  A.C. 212. (2) 69 I.A. 1, 8 and 9.
(3)  2 Ch. 101, 119. (4)  3 K.B.
(5) A.C. 495, 531.
423 agreement that that shall not be the
bank's duty, otherwise the whole object of the contract would be frustrated.
We have stressed the word
"primarily" because the rules we have set out relate to the primary
obligation. If the bank wrongly refuses to pay when a demand is made at the
proper place and time, then it could be sued at its head office as well as at
its branch office and, possibly, wherever it could be found, though we do not
decide that. But the reason is that the action is then, not on the debt, but on
the breach of the contract to pay at the place specified in the agreement: see
Warrington, L. J. at page 116 and Atk in, L. J. at page 121 of New York Life
Insurance Co. V. Public Trustee(1).
Now the rules set out above are not confined
to the business of banking. They are of wider application and have also been
applied in insurance cases: Fouad Bishara Jabbour v. State of Israel(2) and New
York Life Insurance Co. v. Public Trustee(1).
Similar considerations obtain in England when
an involuntary assignment of a debt is effected by garnishment.
Cheshire has collected a list of English
cases at pages 460 to 463 of his Private International Law from which we have
quoted above. He sums up the position at page 461 thus" It is difficult to
state the rule with exactitude but it is probably true to say that a debt is
properly garnishable in the country where, according to the ordinary usages of
business, it would normally be regarded as payable".
But when all is said and done, we find that
in every one of these cases the proper law of the contract was applied, that is
to say, the law of the country in which its elements were most densely grouped
and with which factually the contract was most closely connected. It is true
the judges purport to apply the leX Situs but in determining the situs they
apply rules (and modify them where necessary to suit changing modern
conditions) which in fact are the very rules (1)  2 Ch. 101.
(2)  1 A.E.R. 145, 424 which in
practice would be used to determine the proper law of the contract. The English
Judges say that when the intention is not express one must be inferred and the
rules they have made come to this: that as reasonable men they must be taken to
have intended that the proper law of the contract should obtain. The other view
is that the intention does not govern even when express and that the proper law
must be applied objectively. But either way, the result is the same when there
is no express term. The "proper law," is in fact applied and for
present purposes it does not matter whether that is done for the reasons given
by Cheshire or because the fluid English rules that centre round the lex situs
lead to the same conclusion in this class of case.
That, however, raises a further question.
Which is the proper law? The law that obtains when the contract was made and
the obligation fashioned or the law in force at the time when performance is
due? Here again, we think the answer is correctly given by Cheshire at page
210, quoting Wolff's Private International Law, page 424, and Be. Chesterman's
"A proper law intended as a whole to
govern a contract is administered as 'a living and changing body of law' and
effect is given to any changes occur. ring in it before performance falls
This is what the English Courts did in New
York Insurance Co. v. Public Trustee(2), Re. Banque Des Marchands De Moscou(3),
Fouad Bishara Jabbour v. State of Israel(4), and Arab Bank Ld. v. Barclays
Bank(5). They were all cases in which the law changed because of the outbreak
of war and where performance became impossible because of local legislation. In
the last two cases, the debts vested in the Custodian because of local
legislation and payment by the debtor to the Custodian was regarded as a good
discharge of the debt. The position in those two cases was just what it is
(1) 2 Ch. 466, 478. (2)  2 Ch.
(3)  2 A.E.R. 746. (4)  1 A.E.R.
(5) A.C. 495, 529.
425 Counsel argued that as Lyallpur was part
of India, when the contract was made, the Indian law must be applied and that
no different intention can be imputed to the parties. But that is not the law,
as we understand it, whether we apply the "proper law" or the situs
rules. The proper law will be the law at Lyallpur applied as a living and
changing whole, and this would have been the case even if India had not been
divided, because each State had the right to make different local laws even in
undivided India, as witness the different money lending laws and the cloth and
grain control orders:
indeed this very case is an illustration of
that, for the controls which gave rise to this very contract were not uniform
throughout India. But even apart from the "proper law" the decision
of the Privy Council in Arab Bank Ld. v. Barclays Bank(1) and of the Queens
Bench Division in Fouad Bishara Jabbour v. State of Israel (2 ) negatives this
contention when ail intention has to be imputed or a clause in the contract
It is necessary, however, to bear in mind
that, under modern conditions, choses in action arising out of contract have
two aspects: (1) as property and (2) as involving a contractual obligation for
performance. The property aspect is relevant for purposes of assignment,
administration, taxation and the like; the contractual aspect for performance.
In the present case, we are primarily concerned with the property aspect
because the Pakistan Ordinance regards debts as property and vests all evacuee
property in the Custodian and requires every person holding such property to
surrender it to the Custodian on pain of penalties prescribed by the Ordinance,
and section 11(2) states that"Any person who makes a payment under
subsection (!)-shall be discharged from further liability to pay to the extent
of the payment made".
The payment was made and that, in our
opinion, exonerated the defendant from further liability. Such payment would
operate as a good discharge even under the English rules:
see Fouad Bishara Jabbour v. (1)  A.C.
(2)  1 A.E.R. 145 426 State of
Israel(1) at page 154 where a number of English authorities are cited,
including a decision of the Privy Council in Odwin v. Forbes(2). That was also
the result of the decisions in the following English cases, which are similar
to this, though the basis of the decisions was the situs of the debt and the
multiple residence of corporations: Fouad Bishara Jabbour v. State of
Israel(1), Be Banque Des Marchands De Moscou(3) and Arab Bank Ld. v. Barclays
The same result follows from the decision of
the Judicial Committee in the Bank of Travancore Ltd. v. Dhrit Ram(5) where
Lord Atkin said"When consideration is being given to the question, what
law did the parties intend to govern the contract? it seems proper to bear in
mind that the promisor is a bank incorporated under Travancore law with,
apparently, some connection with the State of Travancore, and governed as to
its business by any law of Travancore that may affect banking........
The only difference between that case and
this is that at the date of the deposit in this case there was no difference
between the laws of Punjab and Delhi on the present point.
But they could have differed even if India
had not been divided, as we have just pointed out. The English cases are,
however, in point and we can see little in principle to distinguish them from
The learned counsel for the
plaintiffs-respondents argued that even if the law is what we have said, the
Pakistan Ordinance does not apply to this case because "a cash deposit in
a bank" is excluded. The argument was based on the definition of
"property" in section 2(5) of the Ordinance. But this is not a cash
deposit in a bank as between the plaintiffs and the defendant. It is a debt
which the defendant owes, or owed, to the plaintiffs, and the same definition
states that "property" means, among other things, any debt or
actionable claim The portion of the definition which speaks of a "cash
deposit in a bank" means that such a deposit is not to be treated as (1)
 1 A.E.R. 145. (2) 1817 Buck. 57.
(3)  2 A.E.R. 746. (4)  A.C..
495, 529, (5)69 I. A. 1, 9.
427 "property" for the purposes of
the Ordinance as between the bank and the customer who owns or controls the
deposit. We hold, therefore, that whether the proper law of the contract
applies or the English law of situs in a case of this kind, the defendant is
exonerated because, the debt being "property", the Ordinance divested
the plaintiffs of ownership in it and vested the debt in the Custodian and at
the same time interfered with the obligation for performance by providing that
payment to the Custodian shall operate as a discharge of the obligation.
But we wish to emphasize that we decide this
because payment was in fact made to the Custodian and that we express no opinion
about what would happen in a case where there is no payment and the defendant
has no garnishable assets in Pakistan out of which the West Punjab Government
could realise the debt by attachment of the defendant's property. Different
conclusions might possibly arise in such a case.
Lastly, it was urged that the Pakistan
Ordinance is a penal law and is confiscatory in character, therefore, no
domestic tribunal will recognise it or give effect to it. That proposition is,
in any event, too widely stated, but we are unable to condemn this law as
opposed to the public -policy of this country because we have exactly the same
kind of laws here, as do other civilised countries which find themselves in
similar predicament or at the outbreak of war see Arab Bank Ltd. v. Barclays
Bank(1) and also Fouad Bishara Jabbour v. State of Israel(2) and Re. Munster(3) where a like argument was repelled. We hold that this legislation is not
The same rules apply to the item of Rs.
79-6-6 and to the deposit of Rs. 1,000 as security.
The appeal succeeds. The decrees of the lower
Courts are set aside. A decree will now be passed dismissing the plaintiffs'
claim, but in the special circumstances of this case the parties will bear
their own costs throughout.
(1) 1954 A.C. 495. (2)  1 A.E.R. 145,
157, (3)  1 ch.268.