Kishan Lal & ANR Vs. Bhanwar Lal
[1954] INSC 61 (12 May 1954)
MUKHERJEA, B.K.
AIYYAR, T.L. VENKATARAMA MAHAJAN, MEHAR CHAND
(CJ) BOSE, VIVIAN BHAGWATI, NATWARLAL H.
CITATION: 1954 AIR 500
CITATOR INFO :
R 1955 SC 812 (6)
ACT:
Indian Contract Act (IX of 1872), s. Contract
of agency --Agent's right of indemnity against principal-Whether hit by the
notification prohibiting forward contracts of purchase and sale of bullion.
HEADNOTE:
The respondent as principal entered into several
forward contracts for the purchase and sale of bullion through the appellant's
firm at Indore who worked as commission agents for the respondent. The
transactions resulted in a loss and the appellants who had to pay the amount of
loss to third parties on behalf of the respondent as the agents brought the
suit for recovery of the amount in the Court in Jodhpur where the respondent
resided. It was pleaded by the respondent that according to. the law prevalent
there as contained in the notification of the Marwar Government dated the 3rd
June, 1943, all forward business contract in bullion in which the date fixed
for delivery exceeded 12 days were 440 illegal and therefore a suit on the
basis of these transactions was not maintainable.
Held, that, the suit was really not one to
enforce any contract relating to the purchase or sale of bullion which comes
within the prohibition of the notification but was one by an agent claiming
indemnity against the principal for the loss which the agent had suffered in carrying
out the directions of the principal. The right to such indemnity was founded on
the statutory provision contained in section 222 of the Indian Contract Act and
the acts of payment made by the plaintiffs on behalf of the defendant were
lawful acts as all the transactions took place and the payments were made
outside Marwar and therefore the suit was not hit by the notification.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 88 of 1953.
Appeal under article 132(1) of the
Constitution of India from the Judgment and Order dated the II th September,
1951, of the High Court of, Judicature for the State of Rajasthan at Jodhpur in
D. B. Civil Appeal,(Ijlas-i-Kbas) No. 6 of 1950.
H. J. Umrigar, Narain Andley and Rajinder
Narain for the appellants.
Radhey Lal Aggarwal and B. P. Maheswari, for
the respondent.
1954. May 12. The Judgment of the Court was
delivered by MUKHERJEA J.-This appeal is on behalf of the plaintiffs and has
come before us on a certificate granted by the High Court of Rajasthan, under
article 132(1) of the Constitution, on the ground that the case involves a
substantial question of law as to the interpretation of the Constitution. The
appellant has also put in a petition praying for leave to urge other, grounds
on the merits of the case.
The suit, out of which this appeal arises,
was brought by the appellants, as plaintiffs, on the 16th August, 1946, in the
District Court I at Jodhpur in Rajasthan against the defendant respondent,
claiming to recover from the latter a sum of Rs. 10,342 annas odd together with
interest and costs. The plaintiffs, at all material times, carried on the
business of commission agents both at Indore and Jodhpur under the name and
style 441 of " Kanmal Kishenmal " and I" Kanmal Surajmal "
respectively and their case is that between September and December, 1945, the
defendant entered into several forward contracts for the purchase and sale of
bullion through the plaintiffs' firm at Indore. These transactions proved
unprofitable to the defendant and except a small profit of Rs. 103 annas odd
which one of these transactions fetched, every one of the rest ended in loss
and the loss aggregated to a sum of Rs. 21,423-1-6 pies. It is averred in the
plaint that this entire amount was paid to third parties at Indore by the plaintiffs
on behalf of the defendant and that the plaintiffs received, in all, a sum of
Rs. 11,457-8-0, which the defendant paid from time to time, towards these
losses, to the plaintiffs' firm at Jodhpur. The plaintiffs were therefore
entitled to the balance of Rs. 9,861 which together with interest came up to
Rs. 10,342 and this was the claim laid in the plaint.
The suit was transferred from the District
Court to the Original Side of the High Court of jodhpur and the defendant filed
his written statement in the High Court on the 27th October, 1947. The defence
was a complete denial of the plaintiffs' claim and it was contended inter alia
that the transactions in suit amounted to wagering contracts and according to
the law prevalent in Marwar, as contained in the notification of the Marwar
Government dated the 3rd June, 1943, all forward business contracts in bullion,
in which the date fixed for delivery exceeded 12 days, were illegal and were
punishable as criminal offences. No suit was therefore maintainable on the
basis of these transactions.
On these pleadings a number of issues were
raised of which issue No. 5 stood thus:
" Are the transactions in dispute in the
suit illegal and the present suit in respect of these transactions is not
maintainable on account of the notification dated 3rd June, 1943 ? " The
suit came up for hearing before a single Judge of the Jodhpur High Court
sitting on the Original Side. No evidence was adduced by the parties and the
case 57 442 was heard only on issue No. 5 which was treated as an issue on a
pure question of law. It was held by the learned Judge that, as it was admitted
by the plaintiffs that the contracts to which the suit related covered a period
exceeding 12 days, they came within the prohibition of the notification
referred to above and a suit based upon them was not maintainable in law. The
judgment shows that a contention was raised on behalf of the plaintiffs that
the notification was confined only to contracts made in Marwar or intended to
be performed in that place, and as the contracts in suit were all entered into
at Indore, they could not be hit by the notification. This argument was
repelled by the learned trial judge on a two-fold ground.
It was said in the first place that as the
suit was actually brought in the Jodhpur Court, the plaintiffs could not avoid
facing the notification and the Jodhpur Court could not give them a relief in
violation of its own laws. The other reason assigned was based upon section 13
of the Civil Pro- cedure Code and it was said that if the plaintiffs could and
did get a decree on the basis of these transactions in the Indore Court and
wanted to enforce the same as a foreign judgment in the Court of Jodhpur, the
latter would be- justified in refusing to give effect to such judgment under
section 13 of the Marwar Civil Procedure Code, on the ground that such judgment
was founded on a breach of law in force in Marwar. In this view the learned
Judge, by his judgment dated the 2nd March, 1948, dismissed the plaintiffs'
suit.
The plaintiffs thereupon took an appeal,
against this judgment, to the Appeal Bench of the Jodhpur High Court and the
appeal was heard by a Division Bench consisting of Nawal Kishore C. J. and
Kanwar Amar Singh J. The learned Judges accepted the legal position taken up by
the plaintiffs, that the contracts could be void only if they were entered into
at Marwar or were intended to be performed, either wholly or partly, at Marwar.
Admittedly they were entered into at Indore outside Marwar, but the learned
Judges held that from the fact that certain payments were made by the defendant
and accepted by the plaintiffs towards these contracts at Marwar, it could be
inferred that it 443 was a term of the contracts that they would be performed
at Marwar. Another point raised on behalf of the plaintiffs, that as the
notification of 3rd June, 1943, itself came to an end by efflux of time on the
30th September, 1946, there, was no obstacle in the way of the plaintiffs'
obtaining a decree at any time after that, was repelled by the learned Judges
on the ground that as the contracts themselves were illegal, at the time when
they were entered into, by reason of their violating the provisions of the
notification, the fact that the notification subsequently ceased to be
operative could not make the illegal contracts lawful. The result was that by
its judgment dated the 24th September, 1948, the appellate bench of the High
Court dismissed the appeal.
The plaintiffs thereupon with the leave of
the Court took an appeal against this decision to the Ijlas-i-Khas of the State
of Jodhpur as it then existed. While the appeal of the plaintiffs was pending
before the Ijlas-i-Khas of the Jodhpur State, the integration of the various
States of Rajasthan took place and the United States of Rajasthan was formed on
the 7th of April, 1949. The Rajasthan High Court Ordinance was promulgated by
the Rajpramukh of Rajasthan on the 21st June, 1949, and on the 29th of August
following, the High Court of Rajasthan was constituted. Another Ordinance known
as the 'Rajasthan Appeals and Petitions (Discontinuance) Ordinance, 1949'
provided, by section 4, that pending appeals before the Ijlas-i-Khas of any of
the covenanting States if they related to judicial matters were to be heard by
a special Court to be constituted by the Rajpramukh. This section was amended
by an amending Ordinance dated the 24th of January, 1950, and all these pending
appeals were directed to be heard and disposed of by the Rajasthan High Court
established under' the Rajasthan High Court Ordinance of 1949. In accordance
with this provision the appeal of the plaintiffs was transferred to the High
Court of Rajasthan for disposal. The Constitution of India came into force on
the 26th of January, 1950, and when the appeal came up for hearing before the
Rajasthan High Court a preliminary point was raised as to whether the 444
appeal should not be transferred to the Supreme Court for disposal under
article 374(4) of the Constitution. The matter was referred for consideration
by a Full Bench, and the Full Bench decided that article 374(4) of the
Constitution had no application to the present case and the appeal was to be
heard by the High Court of Rajasthan. The appeal was then placed for hearing
before a Division Bench of the Rajasthan High Court and by their judgment dated
the 11th of September, 1951, the learned Judges dismissed the appeal and
affirmed the decision of the Courts below.
Against this judgment the plaintiffs got
leave to file an appeal to this Court under article 132(1) of the Constitution
and that is how the matter has come before us.
The only constitutional point involved in the
appeal is whether article 374(4) of the Constitution is attracted to the facts
of the present case and whether the appeal should therefore have been transferred
to this Court for disposal instead of being heard and disposed of by the
Rajasthan High Court. In view of the fact that we have' acceded to the prayer
of the appellants and have granted them leave to urge other grounds relating to
the merits of the case in support of the appeal, this constitutional point has
nothing but an academic importance and is not pressed by the appellants.
We would therefore proceed to consider the
points upon which the learned counsel for the appellants has attempted to assail
the propriety of the decision of Rajasthan High Court on its merits.
The learned Judges of the Rajasthan High
Court took the view, and it seems to us quite properly, that the Courts below
were not right in treating issue No. 5 as raising a pure question of law where
no investigation of facts was necessary. The High Court has pointed out that
the defendant while raising the plea of illegality of the contracts in his
written statement, nowhere alleged that the contracts were entered into at
Marwar or were intended to be performed there. On the other hand the plaintiffs
expressly averred that the contracts were made at Indore. The one fact from
which the appeal bench of the Jodhpur High Court drew the conclusion that the
contracts were intended to be 445 performed, partly at least, at Marwar, was
that certain payments towards the losses resulting from the transactions were
made by the defendant to the plaintiffs' firm at Marwar. This, as the Rajasthan
High Court points out, does not necessarily lead to the inference that it was
a' part of the original agreement entered into by the parties, that the
performance was to be made at Marwar. The payments might have been made, as a
matter of convenience, upon express instructions from the Indore firm. It is
also pointed out that if the general principle of law is that it is the debtor
who has to seek the creditor, as the defendant ranked here as a debtor by
reason of the losses suffered in the business, it was for him to seek the
plaintiffs at Indore and not for the plaintiffs to seek him at Jodhpur. The
,suit, it is to be further noted, was brought at Jodhpur only on the allegation
that the defendant resided within its jurisdiction. There was no averment in
the plaint that any part of the cause of action arose within its jurisdiction.
On all these grounds the Rajasthan High Court
was of opinion that the Courts below should have either framed a specific issue
on facts or if they thought that issue No. 5 was sufficiently wide to cover the
question of fact as well, they should have given an opportunity to the parties
to lead evidence for arriving at a finding whether the contracts were to be
performed in whole or in part in Marwar. The learned Judges themselves were
inclined to send the case back, on remand, in order that evidence might be
adduced on this point. But they did not take this step as they were told that
the contracts were entered into by telegrams and no terms of any sort were
settled between the parties, it being understood that the business was to be
conducted according to the custom and usage of the market.
The learned Judges further discussed a
question of Private International Law, apparently raised on behalf of the
defendant, that even if the contract was made outside Marwar and not intended
to be performed there., still the Court of Marwar should refuse to enforce the
contract as it was illegal according to the lex fori, that is to say the law of
the place where the suit was brought.
446 This contention of the defendant was not
accepted and it was held that if the contract was enforceable by the law of the
place where it was made or where it was to be performed, it could not be held
unenforceable in Jodhpur on the ground of its being opposed to public policy as
the prohibition in the notification was not general in its nature and the
contract in question cannot be said to be opposed to any basic ideas of
morality or public policy. After saying all -these however, the learned Judges
of the Rajasthan High Court dismissed the suit on the short point that even if
the sale or purchase under the contracts might have taken place outside Marwar
Yet the notification not only hit the contracts of sale and purchase but the
contract of agency itself relating to such transactions. It is said then that
in the case of Pakki Adat, primarily the place of payment of profit is the
place where the constituent resides and in the present case the plaintiffs had
alleged themselves to be Pakka Adatias. Consequently the agency contract would
be hit by the notification as it was to be performed at Jodhpur where the
defendant lives. We do not think that the learned Judges' approach to the case
has been a proper one or that the reasoning adopted by them can be accepted as
sound.
By the notice of 3rd June, 1943, an
additional rule, namely, rule No. 90(c) was added to the Defence of India Rules
as applied to Marwar. Sub-rule (2) of rule 90(c) laid down that no person shall
enter into forward contract or option in bullion. In sub-rule (1) "
forward contract " was defined to mean 'a contract for delivery of
bullion. at a future date, such date being later than 12 days from the date of
the contract'; and a " contract " was defined to mean ' a contract
made or to be made or to be performed in whole -or in part in Marwar relating to
the sale or purchase of bullion.' The present suit is really not one to enforce
any contract relating to purchase or sale of bullion which comes within the
prohibition of this notification. It is a suit by an agent claiming indemnity
against the principal, for the loss, which the agent had suffered, in carrying
out the directions of the principal. The right to such indemnity is founded on
the statutory provision 447 contained in section 222 of the Indian Contract Act
which stands as follows:
The employer of an agent is bound to
indemnify him against the consequences of all lawful acts done by such agent in
exercise of the authority conferred upon him." Here the plaintiffs paid
the losses resulting from the transactions to third parties, on behalf of the
defend. ant, in exercise of the authority conferred upon them by the latter.
These acts of payment were certainly lawful acts if we assume, as indeed we
must, that all these transactions took place and the payments were made outside
Marwar. It is the statutory right which flows from the contract of agency that
the plaintiffs are seeking to enforce against the defendant and the suit has
been -brought in the Jodhpur Court as the defendant resides within that
jurisdiction.
The fact that in case of Pakki Adat the place
of payment is normally where the constituent resides is immaterial for our
present purpose. A contract for sale or purchase of bullion may be entered into
by and between the parties directly or it may be made through agents. In either
case if such contract is not entered into at Marwar, nor is it agreed to be
performed wholly or in part in Marwar, it would be outside the notification and
cannot be held to be illegal.
The fallacy in the reasoning of the learned
Judges lies in the fact that the contract between principal and agent, which is
entirely collateral to the contract of purchase and sale, has been held by them
as coming within the prohibition of the notification merely on the ground that
payment, by the agent to the principal, of the profits of the transaction could
be made or demanded at the place where the principal resides. In our opinion
the right to indemnity, which is an incident of the contract of agency, is not
hit by the notification at all and is a matter which is entirely collateral to
a forward contract of purchase and sale of bullion which the notification aims
at prohibiting. We hold therefore that the Courts were not right in dismissing
the plaintiffs' suit on the ground that the contracts upon which the suit was
based were illegal by reason of their contravening the provisions 448 of the
notification. The result is that we set aside the judgments of the Courts below
and send the case back to the Original Court of Jodhpur in order that it may be
tried 'on all the other issues raised in the suit after giving opportunity to
the parties to adduce such evidence as they want to adduce. The plaintiffs
appellants will have their costs up to this stage. Further costs will abide the
result.
Order accordingly.
Back
