Gherulal Parakh Vs. Mahadeodas Maiya
& Ors [1959] INSC 28 (26 March 1959)
SUBBARAO, K.
IMAM, SYED JAFFER SARKAR, A.K.
CITATION: 1959 AIR 781 1959 SCR Supl. (2) 406
CITATOR INFO :
R 1965 SC 364 (238) D 1974 SC1924 (30) E 1975
SC1223 (6,17) D 1978 SC 694 (14,39) C 1991 SC 101 (20)
ACT:
Wager-Collateral contract-Agreement of
Partnership to enter into wagering transactions-Legality-Indian Contract Act,
1872 (9 of 1872), ss. 23, 30.
HEADNOTE:
The question for determination in this appeal
was whether an agreement of partnership with the object of entering into
wagering transactions was illegal within the meaning of s. 23 Of the Indian
Contract Act. The appellant and the respondent No. 1 entered into a partnership
with the object of entering into forward contracts for the purchase and sale of
wheat with two other firms and the agreement between them was that the
respondent would enter into the contracts on behalf of the partnership and the
profit or loss would be shared by the parties equally. The transactions
resulted in loss and the respondent paid the entire amount due to the third
parties. On the appellant denying his liability for the half of the loss, the
respondent sued him for the recovery of the same and his defence, inter alia,
was that the agreement to enter into the wagering contracts was unlawful under
s. 23 Of the Contract Act. The trial Court dismissed the suit. The High Court
on appeal held that though the wagering contracts were void under s. 30 Of the
Indian Contract Act, the object of the partnership was not unlawful within the
meaning of the Act and decreed the suit.
It was contended on behalf of the appellant
(1) that a wagering contract being void under S. 30 Of the Contract Act, was
also forbidden by law within the 407 meaning of S.23 Of the Act, that (2) the
concept of public policy was very comprehensive in India since the
independence, and such a contract would be against public Policy, (3) that
wagering contracts were illegal under the Hindu Law and (4) that they were
immoral, tested by the Hindu Law doctrine of pious obligation of sons to
discharge the father's debts.
Held, that the contentions raised were
unsustainable in law and must be negative.
Although a wagering contract was void and
unenforceable under S. 30 Of the Contract Act, it was not forbidden by law and
an agreement collateral to such a contract was not unlawful within the meaning
of s. 23 Of the Contract Act. A partnership with the object of carrying on
wagering transactions was not, therefore, hit by that section.
Pringle v. Jafer Khan, (1883) I.L.R. 5 All.
443, Shibho Mal v. Lachman Das, 1901) I.L.R. 23 All. 165, Beni Madho Das v.
Kaunsal Kishor Dhusar, (1900) I.L.R. 22 All.
452, Md. Gulam Mustafakhan v. Padamsi, A.I.R. (1923) Nag. 48, approved.
ThacKer v. Hardy, (1878) L.R. 4 Q.B. 685,
Read v. Anderson, (1882) L.R. 10 Q.B. 100, Bridger v. Savage, (1885) L.R. 15
Q.B. 363, Hyams v. Stuart King, [1908] 2 K.B. 696, Thwaites v. Coulthwaite,
(1896) 1 Ch. 496, Brookman v. Mather, (1913) 29 T.L.R. 276 and Jaffrey &
Co. v. Bamford, (1921) 2 K.B. 351, Ramloll Thackoorseydass v. Soojumnull
Dhondmull, (1848) 4 M.l.A. 339, Doolubdas Pettamberdass v. Ramloll
Thackoorseydass and Ors. (1850) 5 M.I.A. 109, Raghoonauth Shoi Chotayloll v.
Manickchund and Kaisreechund, (1856) 6 M.I.A. 251, referred to.
Hill v. William Hill, (1949) 2 All E.R. 452,
considered.
The doctrine of public policy was only a
branch of the common law and just like its any other branch, it was governed by
precedents ; its principles had been crystallised under different heads and
though it was permissible to expound and apply them to different situations, it
could be applied only to clear and undeniable cases of harm to the public.
Although theoretically it was permissible to
evolve a new head of public policy in exceptional cirumstances, such a course
would be inadvisable in the interest of stability of society.
Shrinivas Das Lakshminarayan v. Ram Chandra
Ramrattandas, I.L.R. (1920) 44 Bom. 6, Bhagwanti Genuji Girme v. Gangabisan Ramgopal,
I.L.R. 1941 Bom. 71, and Gopi Tihadi v. Gokhei Panda, I.L.R. 1953 Cuttack 558,
approved.
Egerton v. Brownlow, 4 H.L.C. 1 ; 10 E.R.
359, Janson v. Driefontein Consolidated Mines, Ltd., (1902) A.C. 484, Fender v.
St. John-Mildmay, (1938) A.C. :1 and Monkland v.
Jack Barclay Ltd., (1951) 1 All E.R. 714,
referred to.
Like the common law of England, which did not
recognise any principle of public policy declaring wagering contracts illegal,
the Indian Courts, both before and after the passing of 408 Act 21 Of 1848 and
also after the enactment of the Indian Contract Act, 1872, held that wagering
contracts were not illegal as being contrary to public policy and collateral
contracts in respect of them were enforceable in law.
Ramloll Thackoorseydass v. Soojumnull
Dhondmull, (1848) 4 M.I.A. 339, referred to.
Gambling or wagering contracts were never
declared to be illegal by courts in India as being contrary to public policy as
offending the principles of ancient Hindu Law and it was not possible to give a
novel content to that doctrine in respect of gaming and wagering contracts.
The State of Bombay v. R. M. D. Chamaybaugwala,
[1957] S.C.R. 874, considered.
The common law of England and that of India
never struck down contracts of wager on the ground of public policy and such
contracts had always been held not to be illegal although the statute declared
them to be void.
The moral prohibitions in Hindu Law texts
against gambling were not legally enforced but were allowed to fall into
desuetude and it was not possible to hold that there was any definite head or
principle of public policy evolved by courts or laid down by precedents
directly applicable to wagering contracts.
There was neither any authority nor any legal
basis for importing the doctrine of Hindu Law relating to the pious obligation
of sons to pay the father's debt into the dominion of' contracts. Section 23 Of
the Contract Act was inspired by the common law of England and should be
construed in that light.' The word " immoral " was very comprehensive
and varying in its contents and no universal standard could be laid down.
Any law, therefore, based on such fluid
concept would defeat its purpose. The provisions of S. 23 of the Indian
Contract Act indicated that the Legislature intended to give that word a
restricted meaning. The limitation imposed on it by the expression " the
Court regards it as immoral " clearly indicated that it was also a branch
of the common law and should, therefore, be confined to principles recognised
and settled by courts. judicial decisions confined it to sexual immorality, and
wager could not be brought in as new head within its fold.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 215 of 1955.
Appeal from the judgment and decree dated April
1, 1953, of the Calcutta High Court in Appeal from Original Decree No. 89 of
1946, arising, out of the judgment and decree dated December 4, 1945, of the
Subordinate Judge, Darjeeling, in Money Suit No. 5 of 1940.
409 L. K. Jha and D. N. Mukherjee, for the
appellant.
C. B. Aggarwala, K. B. Bagchi and Sukumar
Ghosh, for Respondents Nos. 1 to 5.
1959. March 26. The Judgment of the Court was
delivered by SUBBA RAO, J.-This appeal filed against the judgment of the High
Court of Judicature at Calcutta raises the question of the legality of a
partnership to carry on business in wagering contracts.
The facts lie in a small compass. They,
omitting those not germane to the controversy before us, are as follows: The
appellant, Gherulal Parakh, and the first respondent, Mahadeodas Maiya,
managers of two joint families entered into a partnership to carry on wagering
contracts with two firms of Hapur, namely, Messrs. Mulchand Gulzarimull and
Baldeosahay Surajmull. It was agreed between the partners that the said contracts
would be made in the name of the respondents on behalf of the firm and that the
profit and loss resulting from the transactions would be borne by them in equal
shares. In implementation of the said agreement, the first respondent entered
into 32 contracts with Mulchand and 49 contracts with Baldeosahay and the net
result of all these transactions was a loss, with the result that the first
respondent had to pay to the Hapur merchants the entire amount due to them. As
the appellant denied his liability to bear his share of the loss, 'the first
respondent along 'With his sons filed O. S. No. 18 of 1937 in the Court of the
Subordinate Judge, Darjeeling, for the recovery of half of the loss incurred in
the transactions with Mulchand. In the plaint he reserved his right to claim
any further amount in respect of transactions with Mulchand that might be found
due to him after the accounts were finally settled with him. That suit was
referred to arbitration and on the basis of the award, the Subordinate Judge
made a decree in favour of the first respondent and his sons for a sum of Rs.
3,375. After the final accounts were settled between the first respondent and
the two merchants of Hapur and after 52 410 the amounts due to them were paid,
the first respondent instituted a suit, out of which the present appeal arises,
in the Court of the Subordinate Judge, Darjeeling, for the recovery of a sum of
Rs. 5,300 with interest thereon.
Subsequently the plaint was amended and by
the amended plaint the respondents asked for the same relief on the basis that
the firm had been dissolved. The appellant and his sons, inter alia, pleaded in
defence that the agreement between the parties to enter into wagering contracts
was unlawful under s. 23 of the Contract Act, that as the partnership was not
registered, the suit was barred under s.
69(1) of the Partnership Act and that in any
event the suit was barred under S. 2, Rule 2 of the Code of Civil Procedure.
The learned Subordinate Judge found that the agreement between the parties was
to enter into wagering contracts depending upon the rise and fall of the market
and that the said agreement was void as the said object was forbidden by law
and opposed to public policy. He also found that the claim in respect of the
transactions with Mulchand so far as it was not included in the earlier suit
was not barred under s. 2, Rule 2, Code of Civil Procedure, as the cause of
action in respect of that part of the claim did not arise at the time the said
suit was filed. He further found that the partnership was between the two joint
families of the appellant and the first respondent respectively, that there
could not be in law such a partnership and that therefore s. 69 of the
Partnership Act was not applicable. In the result, he dismissed the suit with
costs.
On appeal, the learned Judges of the High
Court held that the partnership was not between the two joint families but was
only between the two managers of the said families and therefore it was valid.
They found that the' partnership to do business was only for a single venture
with each one of the two merchants of Hapur and for a single season and that
the said partnership was dissolved after the season was over and therefore the
suit for accounts of the dissolved firm was nothit by the provisions of
subsections (1) and (2) of s. 69 of the Partnership Act.
411 They further found that the object of the
partnere was to deal in differences and that though the said transactions,
being in the nature of wager, were void under s. 30 of the Indian Contract Act,
the object was not unlawful within the meaning of s. 23 of the said Act.
In regard to the claim, the learned Judges
found that there was no satisfactory evidence as regards the payment by the
first respondent on account of loss incurred in the contracts with Mulchand but
it was established that he paid a sum of Rs. 7,615 on account of loss in the
contracts entered into with Baldeosahay. In the result, the High Court gave a
decree to the first respondent for a sum of Rs. 3,807-8-0 and disallowed
interest thereon for the reason that as the suit in substance was one for
accounts of a dissolved firm, there was no liability in the circumstances of
the case to pay interest. In the result, the 'High Court gave a decree in
favour of the first respondent for the said amount together with another small
item and dismissed the suit as regards " the plaintiffs other than the
first respondent and the defendants other than the appellant ".
Before we consider the questions of law
raised in the case, it would -be convenient at the outset to dispose of
questions of fact raised by either party. The learned Counsel for the appellant
contends that the finding of the learned Judges of the High Court that the
partnership stood dissolved after the season was over was not supported by the
pleadings or the evidence adduced in the case. In the plaint as originally
drafted and presented to the Court, there was no express reference to the fact
that the business was dissolved and no relief was asked for accounts' of the
dissolved firm. But the plaint discloses that the parties jointly entered into
contracts with two merchants between March 23, 1937, and June 17, 1937, that
the plaintiffs obtained complete accounts of profit and loss on the aforesaid
transactions from the said merchants after June 17, 1937, that they issued a
notice to the defendants to pay them a sum of Rs. 4,146-4-3, being half of the
total payments made by them on account of 412 the said contracts and that the
defendants denied their liability. The suit was filed for recovery of the said
amount. The defendant filed a written-statement on June 12, 1940, but did not
raise the plea based on s. 69 of the Partnership Act. He filed an additional
written-statement on November 9, 1941, expressly setting up the plea.
Thereafter the plaintiffs prayed for the
amendment of the, plaint by adding the following to the plaint as paragraph
" That even Section 69 of the Indian
Partnership Act is not a bar to the present suit as the joint business referred
to above was dissolved and in this suit the Court is required only to go into
the accounts of 'the said joint business ".
On August 14, 1942, the defendant filed a
further additional written-statement alleging that the allegations in paragraph
2 were not true and that as no date of the alleged dissolution had been
mentioned in the plaint, the plaintiffs' case based on the said alleged
dissolution was not maintainable. It would be seen from the aforesaid pleadings
that though an express allegation of the fact of dissolution of the partnership
was only made by an amendment on November 17, 1941, the plaint as originally
presented contained all the facts sustaining the said plea. The defendants in their
written-statement, inter alia, denied that there was any partnership to enter
into forward contracts with the said two merchants and that therefore
consistent with their case they did not specifically deny the said facts. The
said facts, except in regard to the question whether the partnership was
between the two families or only between the two managers of the families on
which there was difference of view between the Court of the Subordinate Judge
and the High Court, were concurrently found by both the Courts. It follows from
the said findings that the partnership was only in respect of forward contracts
with two specified individuals and for a particular season. But it is said that
the said findings were not based on any evidence in the case. It is true that
the documents did not clearly indicate any period limiting the operation of the
partnership, but from the attitude adopted by the 413 defendants in the earlier
suit ending in an award and that adopted in the present pleadings, the nature
of the transactions and the conduct of the parties, no other conclusion
was-possible than that arrived at by the High Court. If so, s. 42 of the
Partnership Act directly applies to this case. Under that section in the
absence of a contract to the contrary, a firm is dissolved, if it is
constituted to carry out one or more adventures or undertakings, by completion
thereof. In this case, the partnership was constituted to carry out contracts
with specified persons during a particular season and as the said contracts were
closed, the partnership was dissolved.
At this stage a point raised by the learned
Counsel for the respondents may conveniently be disposed of. The learned
Counsel contends that neither the learned Subordinate Judge nor the learned
Judges of the High Court found that the first respondent entered into any
wagering transactions with either of the two merchants of Hapur and therefore
no question of illegality arises in this case. The law on the subject is well settled
and does not call for any citation of cases. To constitute a wagering contract
there must be proof that the contract was entered into upon terms that the
performance of the contract should not be demanded, but only the difference in
prices should be paid. There should be common intention between the parties to
the wager that they should not demand delivery of the goods but should take
only the difference in prices on the happening of an event.
Relying upon the said legal position, it is
contended that there is no evidence in the case to establish that there was a
common intention between the first respondent and the Hapur merchants not to
take delivery of possession but only to gamble in difference in prices. This
argument, if we may say so, is not really germane to the question raised in
this case. The suit was filed on the basis of a dissolved partnership for
accounts. The defendants contended that the object of the partnership was to
carry on wagering transactions, i. e., only to gamble in differences without
any intention to give or take delivery of goods. The Courts, on the evidence,
both 414 direct and circumstantial, came to the conclusion that the partnership
agreement was entered into with the object of carrying on wagering transactions
wherein there was no intention to ask for-or to take delivery of goods but only
to deal with differences. That is a concurrent finding of fact, and, following
the usual practice of this Court, we must accept it. We, therefore, proceed on
the basis that the appellant and the first respondent entered into a partnership
for carrying on wagering transactions and the claim related only to the loss
incurred in respect of those transactions.
Now we come to the main and substantial point
in the case.
The problem presented, with its different
facets, is whether the said agreement of partnership is unlawful within the
meaning of s. 23 of the Indian Contract Act. Section 23 of the said Act,
omitting portions unnecessary for the present purpose, reads as follows :
" The consideration or object of an
agreement is lawful, unless it is forbidden by law, or the Court regards it as
immoral, or opposed to public policy.
In each of these cases, the consideration or
object of an agreement is said to be unlawful. Every agreement of which the
object or consideration is unlawful is void." Under this section, the
object of an agreement, whether it is of partnership or otherwise, is unlawful
if it is forbidden by law or the Court regards it as immoral or opposed to
public policy and in such cases the agreement itself is void.
The learned Counsel for the appellant
advances his argument under three sub-heads: (i) the object is forbidden by
law, (ii) it is opposed to public policy, and (iii) it is immoral. We shall consider
each one of them separately.
Re. (i)--forbidden by law: Under s. 30 of the
Indian Contract Act, agreements by way of wager are void; and no suit shall be
brought for recovering anything 415 alleged to be won on any wager, or
entrusted to any person to abide the result of any game or other uncertain
event on which any wager is made. Sir William Anson's definition of "
wager " as a promise to give money or money's worth upon the determination
or ascertainment of an uncertain event accurately brings out the concept of
wager declared void by s. 30 of the Contract Act. As a contract which provides
for payment of differences only without any intention on the part of either of
the parties to give or take delivery of the goods is admittedly a wager within
the meaning of s. 30 of the Contract Act, the argument proceeds, such a
transaction, being void under the said section, is also forbidden by law within
the meaning of s. 23 of the Contract Act. The question, shortly stated, is
whether what is void can be equated with what is forbidden by law. This
argument is not a new one, but has been raised in England as well as in India
and has uniformly been rejected. In England the law relating to gaming and
wagering contracts is contained in the Gaming Acts of 1845 and 1892. As the
decisions turned upon the relevant provisions of the said Acts, it would help
to appreciate them better if the relevant sections of the two Acts were read at
this stage:
Section 18 of the Gaming Act, 1845:
" Contracts by way of gaming to be void,
and wagers or sums deposited with stakeholders not to be recoverable at law Saving
for subscriptions for prizes................. All contracts or agreements,
whether by parole or in writing, by way of gaming or wagering, shall be null
and void;
and......... no suit shall be brought or
maintained in any court of law and equity for recovering any sum of money or
valuable thing alleged to be won upon any wager, or which shall have been
deposited in the hands of any person to abide-the event on which any wager
shall have been made:
Provided always, that this enactment shall
not be deemed to apply to any subscription or contribution, or agreement to
subscribe or contribute, for or towards any plate, prize or sum of money to be
awarded -to the winner or winners of any lawful game, sport, pastime or
exercise." 416 Section 1 of the Gaming Act, 1892:
" Promises to repay sums paid under
contracts void by 8 & 9 Viet. c 109 to be null and void.-Any promise,
express or implied, to pay any person any sum of money paid by him under or in
respect of any contract or agreement rendered null and void by the Gaming Act,
1845, or to pay any sum of money by way of commission, fee, reward, or
otherwise in respect of any such contract, or of any services in relation
thereto or in connection therewith, shall be null and void, and no action shall
be brought or maintained to recover any such sum of money." While the Act
of 1845 declared all kinds of wagers or games null and void, it only prohibited
the recovery of money or valuable thing won upon any wager or deposited with
stakeholders. On the other hand, the Act of 1892 further declared that moneys
paid under or in respect of wagering contracts dealt with by the Act of 1845
are not recoverable and no commission or reward in respect of any wager can be
claimed in a court of law by agents employed to bet on behalf of their
principals. The law of England till the passing of the Act of 1892 was
analogous to that in India and the English law on the subject governing a
similar situation would be of considerable help in deciding the present case.
Sir William Anson in his book " On Law of Contracts " succinctly
states the legal position thus, at page 205:
"................ the law may either
actually forbid an agreement to be made, or it may merely say that if it is
made the Courts will not enforce it. In the former case it is illegal, in the
latter only void; but inasmuch as illegal contracts are also void, though void
contracts are not necessarily illegal, the distinction is for most purposes not
important, and even judges seem sometimes to treat the two terms as interchangeable."
The learned author proceeds to apply the said general principles to wagers and
observes, at page 212, thus:
"Wagers 'being only void, no taint of
illegality attached to a transaction, whereby one man employed another to make
bets for him; the ordinary rules which 417 govern the relation of employer and
employed applied in such a case." Pollock and Mulla in their book on
Indian Contract define the phrase ',forbidden by law " in s. 23 thus, at
page 158:
"An act or undertaking is equally
forbidden by law whether it violates a prohibitory enactment of the Legislature
or a principle of unwritten law. But in India, where the criminal law is
codified, acts forbidden by law seem practically to consist of acts punishable
under the Penal Code and of acts prohibited by special legislation, or by
regulations or orders made under authority derived from the Legislature."
Some of the decisions, both English and Indian, cited at the Bar which bring
out the distinction between a contract which is forbidden by law and that which
is void may now be noticed. In Thacker v. Hardy (1), the plaintiff, a broker,
who was employed by the defendant to speculate for him upon the stock Exchange,
entered into contracts on behalf of the defendant with a third party upon which
he (the plaintiff) became personally liable. He sued the defendant for
indemnity against the liability incurred by him and for commission as broker.
The Court held that the plaintiff was entitled to recover notwithstanding the
provisions of 8 & 9 Viet. c. 109, s. 18 (English Gaming Act, 1845).
Lindley, J., observed at page 687:
" Now, if gaming and wagering were
illegal, I should be of opinion that the illegality of the transactions in
which the plaintiff and the defendant were engaged would have tainted, as
between themselves, whatever the plaintiff had done in furtherance of their
illegal designs, and would have precluded him from claiming, in a court of law,
any indemnity from the defendant in respect of the liabilities he had incurred:
Cannan v. Bryce (3 B. & Ald. 179);
McKinnell v. Robinson (3 M. & W. 434);
Lyne v. Siesfeld (1 H. & N. 278). But it has been held that although gaming
and wagering contracts cannot be enforced, they are (1) (1878) L.R. 4 Q.B. 685.
53 418 not illegal. Fitch v. Jones (5 E.
& B. 238) is plain to that effect. Money paid in discharge of a bet is a
good consideration for a bill of exchange: Oulds v. Harrison (10 Ex. 572); and
if money be so paid by a plaintiff at the request of a defendant, it can be
recovered by action against him : Knight v. Camber (15 C.B. 562); Jessopp v. Lutwyoho
(10 Ex. 614); Rosewarne v. Billing (15 C. B.
(N. S.) 316); and it has been held that a
request to pay may be inferred from an authority to bet: Oldham v. Ramsden (44
L. J. (C. P.) 309). Having regard to these decisions, I cannot hold that the
statute above referred to precludes the plaintiff from maintaining this
action." In Read v. Anderson.(1) where an agent was employed to make a bet
in his own name on behalf of his principal, a similar question arose for
consideration. Hawkins, J., states the legal position at page 104 :
" At common law wagers were not illegal,
and before the passing of 8 & 9 Vict. c. 109 actions were constantly
brought and maintained to recover money won upon them. The object of 8 & 9
Viet. c. 109 (passed in 1845) was not to render illegal wagers which up to that
time had been lawful, but simply to make the law no longer available for their
enforcement, leaving the parties to them to pay them or not as their sense of
honour might dictate." After citing the provisions of s. 18 of that Act,
the learned Judge proceeds to observe thus, at page 105 :
" There is nothing in this language to
affect the legality of wagering contracts, they are simply rendered null and
void; and not enforceable by any process of law. A host of authorities have
settled this to be the true effect of the Statute." This judgment of
Hawkins, J., was confirmed on appeal (reported in 13 Q. B. 779) on the ground
that the agency became irrevocable on the making of the bet. The judgment of the
Court of Appeal cannot be considered to be a direct decision on the point. The
said principle was affirmed by the Court of Appeal again in Bridger v. Savage
(2). There the plaintiff sued his (1) (1882) L.R. 10 Q.B. 100.
(2) (1885) L.R. 15 Q.B. 363.
419 agent for the amount received by him in
respect of the winnings from the persons with whom the agent had betted.
Brett, M. R., observed at page 366 :
"............ the defendant has received
money which he contracted with the plaintiff to hand over to him when he had
received it. That is a perfectly legal contract ; but for the defendant it has
been contended that the statute 8 & 9 Vict. c. 109, s. 18, makes that
contract illegal. The answer is that it has been held by the Courts on several
occasions that the statute applies only to the original contract -made between
the persons betting, and not to such a contract as was made here between the
plaintiff and defendant." Bowen, L. J., says much to the same effect at
page 367:
"Now with respect to the principle
involved in this case, it is to be observed that the original contract of
betting is not an illegal one, but only one which is void. If the person who
has betted pays his bet, he does nothing wrong;
he only waives a benefit which the statute
has given to him, and Confers a good title to the money on the person to whom
he pays it. Therefore when the bet is paid the transaction is completed, and
when it is paid to an agent it cannot be contended that it is not a good
payment for his principal............ So much, therefore, for the principle
governing this case. As to the authorities, the cases of Sharp v. Taylor (2
Phil. 801), Johnson v. Lansley (12 C. B. 468), and Beeston v. Beeston (I Ex. D.
13), all go to shew that this action is maintainable, and the only authority
the other way is that of Beyer v. Adams (26 L. J. (Ch.) 841), and that case
cannot be supported, and is not law." This case lays down the correct
principle and is supported by earlier authorities. The decision in Partridge v.
Mallandaine (1) is to the effect that persons receiving profits from betting
systematically carried on by them are chargeable with income-tax on such
profits in respect of a " vocation " under 5 & 6 Vict. c. 35 (the
Income Tax Act) Schedule D. Hawkins, J., rejecting the argument that the (1)
(1887) L.R. 18 Q.B. 276.
420 profession of bookmakers is not a calling
within the meaning of the Income Tax Act, makes the following observations, at
page 278:
"Mere betting is not illegal. It is
perfectly lawful for a man to bet if he likes. He may, however, have a
difficulty in getting the amount of the bets from dishonest persons who make
bets and will not pay." The decision in Hyams v. Stuart King (1) deals
with the problem of the legality of a fresh agreement between parties to a
wager for consideration. There, two bookmakers had betting transactions
together, which resulted in the defendant giving the plaintiff a cheque for the
amount of bets lost to him. At the request of the defendant, the cheque was
held over by the plaintiff for a time, and part of the amount of the cheque was
paid by the defendant.
Subsequently a fresh verbal agreement was
come to between the parties, by which, in consideration of the plaintiff
holding over the cheque for a further time and refraining from declaring the
defendant a defaulter and thereby injuring him with his customers, the
defendant promised to pay the balance owing in a few days. The balance was
never paid and the plaintiff filed a suit to recover the money on the basis of
the fresh verbal agreement. The Court of Appeal, by a majority, Fletcher
Moulton, L. J., dissenting, held that the fresh verbal agreement was supported
by good consideration and therefore the plaintiff was entitled to recover the
amount due to him. At page 705, Sir Gorell Barnes posed the following three
questions to be decided in the case: (1) Whether the new contract was itself
one which falls within the provisions of 8 & 9 Vict. c. 109, s. 18;
(2) whether there was any illegality
affecting that contract; and (3) whether that contract was a lawful contract
founded on good consideration. Adverting to the second question, which is
relevant to the present case, the President made the following observations at
page 707:
"............... it is to be observed
that there was nothing illegal in the strict sense in making the bets.
(1) [1908] 2 K.B. 696.
421 They were merely void under 8 & 9
Vict. c. 109, and there would have been no illegality in paying them. There is
no doubt whatever about this. There was also nothing illegal in giving the
cheque nor would there have been any illegality in paying it, though the
defendants could not have been compelled by the plaintiff to pay it, because by
statute it was to be deemed and taken to have been made and given for an illegal
consideration, and therefore void in the hands of the plaintiff........ The
statutes do not make the giving or paying of the cheque illegal, and impose no
penalty for so doing. Their effect and intention appear only, so far as
material, to be that gaming or wagering contracts cannot be enforced in a Court
of Law or Equity..............." The view expressed by the President is
therefore consistent with the view all along accepted by the Courts in England.
This case raised a now problem, namely,
whether a substituted agreement for consideration between the same parties to
the wager could be enforced, and the majority held that it could be enforced,
while Fletcher Moulton, L.
J., recorded his dissent. We shall have
occasion to notice the dissenting view of Fletcher Moulton, L. J., at a later
stage. The aforesaid decisions establish the proposition that in England a
clear distinction is maintained between a contract which is void and that which
is illegal and it has been held that though a wagering contract is void and
unenforceable between parties, it is not illegal and therefore it does not
affect the validity of a collateral contract.
'The same principle has been applied to
collateral contracts of partnership also. In Thwaites v. Coulthwaite (1) the
question of legality of a partnership of bookmaking and betting was raised.
There the plaintiff and defendant were partners in a-bookmakers and betting
business, which was carried on by the defendant; the plaintiff claimed an
account of the profits of the partnership, and the defendant contended that,
having regard to the nature of the business, no such relief could be obtained.
Chitty, J., rejected the (1) (1896) 1 Ch. 496.
422 plea holding that the partnership was
valid, for the following reasons, among others, and stated at page 498: "
The Gaming Act, 1845 (8 & 9 Vict. c. 109), did not make betting illegal;
this statute, as is well known, merely avoided the wagering contract. A man may
make a single bet or many bets; he may habitually bet; he may carry on a betting
or bookmakers business within the statute, provided the business as carried on
by him does not fall within the prohibition of the Betting Act, 1853." In
Thomas v. Day (1), a similar question arose. There the plaintiff claimed an
account and money due under a partnership which he alleged had existed between
himself and the defendant to take an office and carry on a betting business as
bookmakers. Darling, J., held that a partnership to carry on the business of a
bookmaker was not recognized by law, that even if there was such a legal
partnership, an action for account would not lie as between the two bookmakers
founded on betting and gambling transactions. This judgment certainly supports
the appellant; but the learned Judge did not take notice of the previous
decision on the subject and the subsequent decisions have not followed it. When
a similar objection was raised in Brookman v. Mather (2), Avery, J., rejected
the plea and gave a decree to the plaintiff. There the plaintiff and the
defendant entered into a partnership to carry on a betting business. Two years
thereafter, in 1910, the partnership was dissolved and a certain amount was
found due to the plaintiff from the defend ant and the latter gave the former a
promissory note for that amount. A suit was filed for the recovery of the
amount payable under the promissory note. Avery, J., reiterated the principle
that betting was not illegal per se. When the decision in Thomas v. Day(1) was
cited in support of the broad principle that the betting business could not be
recognized as legal in a Court of Justice, the learned Judge pointed out that
that case was decided without reference to Thwaites (1) (1908) 24 T.L.R. 272.
(2) (1913) 29 T.L.R. 276.
423 v. Coulthwaite (1). This judgment,
therefore, corrected the deviation made by Darling, J., in Thomas v. Day(2 )
and put the case law in line with earlier precedents.
The earlier view was again accepted and
followed in Keen v. Price (3) where an action by one of the partners in a
bookmakers and betting business against the other for an account of the
partnership dealings was entertained. But the Court gave liberty to the
defendant to object to repaying anything which represented profits in such
business. The reason for this apparent conflict between the two parts of the
decision is found in the express terms of the provisions of the Gaming Act of
1892. Commenting upon Thwaites v. Coulthwaite (1) in which Chitty, J., held
that such an action would lie for an account of the profits of the partnership,
Sargant, J., pointed out that in that case the Gaming Act, 1892, was not
referred to. At page 101, the learned Judge says:
" Curiously enough, in that case the
Gaming Act, 1892, was not referred to, and although the decision is a good one
on the general law, it cannot be regarded as a decision on the Act of
1892." This judgment confirms the principle that a wager is not illegal,
but states that after the Gaming Act, 1892, a claim in respect of that amount
even under a collateral agreement is not maintainable.
In O'Connor and Ould v. Ralston (4), the
plaintiff, a firm of bookmakers, filed a suit claiming from the defendant the
amount of five cheques drawn by him upon his bank in payment of bets which he
had lost to them and which had been dishonoured on presentation. Darling, J.,
held that as the plaintiffs formed an association for the purpose of carrying
on a betting business, the action would not lie. In coming to that conclusion
the learned Judge relied upon the dissenting view of Fletcher Moulton, L. J.,
in Hyams v.
Stuart King We shall consider that decision
at a later stage.
(1) (1896) 1 Ch. 496. (2) (1908) 24 T.L.R.
272.
(3) (1914) 2 Ch. 98. (4) (1920) 3 K.B. 451.
(5) [1908] 2 K.B. 696.
424 The opinion of Darling, J., was not
accepted in Jeffrey Co.
v. Bamford (1) wherein McCardie, J., held
that a partnership for the purpose of carrying on a betting and bookmakers
business is not per se illegal or impossible in law. The learned Judge says at
page 356:
"............ betting or wagering is not
illegal at common law...... .
It has been repeatedly pointed out that mere
betting on horse races is not illegal ".
The learned Judge, after noticing the earlier
decisions already considered by us and also some of the observations of
Fletcher Moulton, L. J., came to the conclusion that the partnership was not
illegal.
We shall now scrutinize the decision in Hill
v. William Hill (I) to see whether there is any substance in the argument of
the learned Counsel for the appellant that this decision accepted the dissenting
view of Fletcher Moulton, L. J., in Hyams v. Stuart King (3) or the view of
Darling, J., in Thomas v. Day (4) and O'Connor and Ould v. Ralston (5). The
facts in that case were: The appellant had betting transactions with the
respondents, a firm of bookmakers. As a result of those transactions, the
appellant lost pound 3,635-12-6. As the appellant was unable to pay the amount,
the matter was referred to the committee of Tattersalls, who decided that the
appellant should pay the respondents a sum of pound 635-12-6 within fourteen
days and the balance by monthly instalments of pound 100. It was laid down that
if the appellant failed to make those payments, he was liable to be reported to
the said committee which would result in his being warned off Newmarket Heath
and posted as defaulters The appellant informed the respondents that he was
unable to pay the pound 635-12-6 within the prescribed time and offered to send
them a cheque for that sum postdated October 10, 1946, and to pay the monthly
instalments of pound 100 thereafter. On the respondents agreeing to that
course, the appellant sent a post-dated cheque to (1) (1921) 2 K.B. 351. (2)
(1949) 2 All E.R. 452.
(3) [1908] 2 K.B. 696. (4) (1908) 24 T.L.R.
272.
(5) (1920) 3 K.B. 451.
425 them and also enclosed a letter agreeingto
pay the monthly instalments. As the post-dated cheque was dishonoured and the
appellant failed to pay the entire amount, the respondents filed a suit
claiming the amount due to them under the subsequent agreement. The respondents
contended that the sum the appellant had promised to pay was not money won upon
a wager within the meaning of the second branch of s. 18, but was money due
under a new lawful and enforceable agreement and that even if the sum was to be
regarded as won on a wager, the agreement was outside the scope of the second
branch of s. 18 of the Gaming Act, 1845. The House of Lords by a majority of 4
to 3 held that the agreement contained a new promise to pay money won upon a
wager and that the second branch of s. 18 applied to all suits brought to
recover money alleged to have been won on a wager and therefore the contract
was unenforceable. In coming to that conclusion, Viscount Simon, one of the
Judges who expressed the majority view, agreed with Fletcher Moulton, L. J., in
holding that the bond constituted an agreement to pay money won upon a wager,
notwithstanding the new consideration, and was thus unenforceable under the
second limb of s. 18.
In Hyams v. Stuart King(1), the facts of
which we have already given, the suit was filed on the basis of a subsequent
agreement between the same parties to the wager.
The majority of the Judges held that the
subsequent agreement was supported by good consideration, while Fletcher
Moulton, L. J., dissented from that view. The basis for the dissenting view is
found at page 712. After reading s. 18 of the Gaming Act, 1845, the learned
Judge proceeded to state:
" In my opinion too little attention has
been paid to the distinction between the two parts of this enactment, and the
second part has been treated as being in effect merely a repetition of the
first part. I cannot accept such an interpretation. So far as the actual
wagering contract is concerned, the earlier provision is ample. It makes that
contract absolutely void, (1) [1908] 2 K.B. 696.
54 426 and it would be idle to enact in
addition that no suit should be brought upon a contract that had thus been
rendered void by statute. The language of the later provision is in my opinion
much wider. It provides with complete generality that no action shall be
brought to recover anything alleged to be won upon any wager, without in any
way limiting the application of the provision to the wagering contract -itself.
In other words, it provides that wherever the obligation under a contract is or
includes the payment of money won upon a wager, the Courts shall not be used to
enforce the performance of that part of the obligation ".
These observations must be understood in the
context of the peculiar facts of that case. The suit was between the parties to
the wager. The question was whether the second part of the concerned section
was comprehensive enough to take in an agreement to recover the money won upon
a wager within the meaning of that part. Fletcher Moulton, L. J., held that the
second part was wide and comprehensive enough to take in such a claim, for the
suit was, though on the basis of a substituted agreement, for the recovery of
the money won upon a wager within the meaning of the words of that part of the
section. The second question considered by the learned Judge was whether the
defendants' firm which was an association formed for the purpose of a betting
business was a legal partnership under the English Law. The learned Judge
relied upon the Gaming Act. 1892 in holding that it was not possible under the
English law to have any such partnership. At page 718, the learned Judge
observed :
In my opinion no such partnership is
-possible under English law. Without considering any other grounds of objection
to its existence, the language of the Gaming Act, 1892, appears to me to be
sufficient to establish this proposition. It is essential to the idea of a
partnership that each partner is an agent. of the partnership and (subject to
the provisions of the partnership deed) has authority to make payments on its
behalf for partnership purposes, for which he is entitled 427 to claim credit
in the partnership accounts and thus receive, directly or indirectly,
repayment. But by the Gaming Act, 1892, all promises to pay any person any sum
of money paid by him in respect of a wagering contract are null and void. These
words are wide enough to nullify the fundamental contract which must be the
basis of a partnership, and therefore in my opinion no such partnership is
possible, and the action for this reason alone was wrongly framed and should
have been dismissed with costs ".
It would be seen from the said observations
that Fletcher Moulton, L. J., laid down two propositions: (i) The second part
of s. 18 of the Gaming Act, 1845, was comprehensive enough to take in a claim
for the recovery of money alleged to be won upon a wager though the said claim
was based upon a substituted contract between the same parties; and (ii) by
reason of the wide terms of the Gaming Act, 1892, even the fundamental
contract, which was the basis of a partnership, was itself a nullity. The
learned Lord Justice did not purport to express any opinion on the effect of a
void contract of wager on a collateral contract. In Hill's case (1) the only
question that arose was whether the second part of s. 18 was a bar to the
maintainability of a suit under a substituted agreement for the recovery of
money won upon a wager. The majority accepted the view of Fletcher Moulton, L.
J., on the first question. The second question did not arise for consideration
in that case. The House of Lords neither expressly nor by necessary implication
purported to hold that collateral contract of either partnership or agency was
illegal; and that the long catena of decisions already referred to by us were
wrongly decided. This judgment does not therefore support the contention of the
learned Counsel for the appellant.
The legal position in India is not different.
Before the Act for Avoiding Wagers, 1848, the law relating to wagers that was
in force in British India was the common law of England. The Judicial Committee
in Ramloll Thackoorseydass v. Soojumnull Dhondmull (2) (1) (1921) 2 K.B. 351.
(2) (1848) 4 M.I.A. 339.
428 expressly ruled that the common law of
England was in force in India and under that law an action might be maintained
on a wager. The wager dealt with in that case was upon the average price which
opium would fetch at the next Government sale at Calcutta. Lord Campbell in
rejecting the plea that the wager was illegal observed at page 349:
" The Statute, 8 & 9 Viet. c. 109,
does not extend to India' and although both parties on the record are Hindoos,
no peculiar Hindoo law is alleged to exist upon the subject;
therefore this case, must be decided by the
common law of England ".
It is a direct decision on the point now
mooted before us and it is in favour of the respondents. Again the Privy
Council considered a similar question in Doolubdass Pettamberdass v. Ramloll
Thackoorseydass and others There again the wager was upon the price that the
Patna opium would fetch at the next Government sale at Calcutta. There the
plaintiff instituted a suit in the Supreme Court of Bombay in January, 1847, to
recover the money won on a wager. After the suit was filed, Act 21 of 1848 was
passed by the Indian Legislature where under all agreements whether made in
speaking, writing, or otherwise, by way of gaming or wagering, would be null
and void and no suit would be allowed in any Court of Law or Equity for
recovering any sum of money or valuable thing alleged to be won on any wager.
This section was similar in terms to that of
s. 18 of the Gaming Act, 1845. Their Lordships held that the contract was not
void and the Act 21 of 1848 would not invalidate the contracts entered into
before the Act came into force.
Adverting to the next argument that under
Hindu Law such contracts were void, they restated their view expressed in
Ramloll Thackoorserdas v. Soojumnull Dhondmull (2) thus at page 127:
" Their Lordships have already said that
they are not satisfied from the authorities referred to, that such is the law
among the Hindoos... . " The Judicial Committee again restated the law in
similar terms in Raghoonauth Sahoi Chotayloll v. (1) (1850) 5 M.I.A. 109.
(2) (1848) 4 M.I.A. 339.
429 Manickchund and Kaisreechund (1). There
the Judicial Committee held that a wagering contract in India upon the average
price opium would fetch at a future Government sale, was legal and enforceable
before the passing of the Legislative Act, No. 21 of 1848.
The aforesaid three decisions of the Privy
Council clearly establish the legal position in India before the enactment of
the Act 21 of 1848, namely, that wagering contracts were governed by the common
law of England and were not void and therefore enforceable in Courts. They also
held that the Hindu Law did not prohibit any such wagers.
The same view was expressed by the Indian
Courts in cases decided after the enactment of the Contract Act. An agent who
paid the amount of betting lost by him was allowed to recover the same from his
principal in Pringle v. Jafar Khan (2). The reason for that decision is given
at page 445:
" There was nothing illegal in the
contract; betting at horse-races could not be said to be illegal in the sense
of tainting any transaction connected with it. This distinction between an
agreement which is only void and one in which the consideration is also
unlawful is made in the Contract Act.
Section 23 points out in what cases the
consideration of an agreement is unlawful, and in such cases the agreement is
also void, that is, not enforceable at law. Section 30 refers to cases in which
the agreement is only void, though the consideration is not necessarily
unlawful. There is no reason why the plaintiff should not recover the sum paid
by him...... ." In Shibho Mal v. Lachman Das (3) an agent who paid the
losses on the wagering transactions was allowed to recover the amounts he paid
from his principal. In Beni Madho Das v. Kaunsal Kishor Dhusar (4) the
plaintiff who lent money to the defendant to enable him to pay off a gambling
debt was given a decree to recover the same from the defendant.
Where two partners entered into a contract of
wager with a third (1) (1856) 6 M.I.A. 251.
(3) (1901) I.L.R. 23 All. 165.
(2) (1883) I.L.R. 5 All. 443.
(4) (1900) I.L.R. 22 All. 452.
430 party and one partner had satisfied his
own and his copartner's liability under the contract, the Nagpur High Court, in
Md. Gulam Mustafakhan v. Padamsi (1) held that the partner who paid the amount
could legally claim the other partner's share of the loss. The learned Judge
reiterated the same principle accepted in the decisions cited supra, when he
said at page 49:
" Section 30 of the Indian Contract Act
does not affect agreements or transactions collateral to wagers.........
." The said decisions were based upon the well-settled principle that a
wagering contract was only void, but not illegal, and therefore a collateral
contract could be enforced.
Before closing this branch of the discussion,
it may be convenient to consider a subsidiary point raised by the learned
Counsel for the appellant that though a contract of partnership was not
illegal, in the matter of accounting, the loss paid by one of the partners on
wagering transactions, could not be taken into consideration.
Reliance is placed in support of this
contention on Chitty's Contract, p. 495, para. 908, which reads:
" Inasmuch as betting is not in itself
illegal, the law does not refuse to recognise a partnership formed for the
purpose of betting. Upon the dissolution of such a partnership an account may
be ordered. Each partner has a right to recover his share of the capital
subscribed, so far as it has not been spent; but he cannot claim an account of
profits or repayments of amounts advanced by him which have actually been
applied in paying the best of the partnership." In support of this view,
two decisions are cited. They are:
Thwaites v. Coulthwaite (2 ) and Saffery v.
Mayer(3). The first case has already been considered by us. There, Chitty, J.,
in giving a decree for account left open the question of the legality of
certain transactions till it arose on the taking of the (1) A.I.R. (1923) Nag.
48. (2) (1896) 1 Ch. 496.
(3) L.R. (1901) 1 K.B. 11.
431 account. Far from helping the appellant,
the observations and the actual decision in that case support the respondents'
contention. The reservation of the question of particular transactions
presumably related only to the transactions prohibited by the Betting Act,
1853. Such of the transactions which were so prohibited by the Betting Act
would be illegal and therefore the contract of partnership could not operate on
such transactions. The case of Saffery v. Mayer(1) related to a suit for
recovery of money advanced by one person to another for the purpose of betting
on horses on their joint account. The appellate Court held that by reason of
the provisions of the Gaming Act, 1892, the action was not maintainable. This
decision clearly turned upon the provisions of the Gaming, Act, 1892. Smith, M.
R., observed that the plaintiff paid the money to the defendant in respect of a
contract rendered null and void and therefore it was not recoverable under the
second limb of that section. The other Lord Justices also based their judgments
on the express words of the Gaining Act, 1892. It will be also interesting to
note that the Court of Appeal further pointed out that Chitty, J., in Thwaites'
Case(2) in deciding in the way he did omitted to consider the effect of the
provisions of the Gaming Act, 1892, on the question of maintainability of the
action before him. The aforesaid passage in Chitty's Contract must be
understood only in the context of the provisions of the Gaming Act, 1892.
The aforesaid discussion yields the following
results: (1) Under the common law of England a contract of wager is valid and
therefore both the primary contract as well as the collateral agreement in
respect thereof are enforceable; (2) after the enactment of the Gaming Act,
1845, a wager is made void but not illegal in the sense of being forbidden by
law, and thereafter a primary agreement of wager is void but a collateral
agreement is enforceable; (3) there was a conflict on the question whether the
second part of s. 18 of the Gaming Act, 1845, would cover a case for the
recovery of money or valuable thing alleged to be won upon (1) L.R. (1901) 1
K.B. 11. (2) (1896) 1 Ch. 496.
432 any wager under a substituted contract
between the same parties: the House of Lords in Hill's Case,(1) had finally
resolved the conflict by holding that such a claim was not sustainable whether
it was made under the original contract of wager between the parties or under a
substituted agreement between them; (4) under the Gaming Act, 1892, in view of
its wide and comprehensive phraseology, even collateral contracts, including
partnership agreements, are not enforceable; (5) s. 30 of the Indian Contract
Act is based upon the provisions of s. 18 of the Gaming Act, 1845, and though a
wager is void and unenforceable, it is not forbidden by law and therefore the
object of a collateral agreement is not unlawful under s. 23 of the Contract
Act;
and (6) partnership being an agreement within
the meaning of s. 23 of the Indian Contract Act, it is not unlawful, though its
object is to carry on wagering transactions. We, therefore, hold that in the
present case the partnership is not unlawful within the meaning of s. 23(A) of
the Contract Act.
Re. (ii)-Public Policy: The learned Counsel
for the appellant contends that the concept of public policy is very
comprehensive and that in India, particularly after independence, its content
should be measured having regard to political, social and economic policies of
a welfare State, and the traditions of this ancient country reflected in
Srutis, Smritis and Nibandas. Before adverting to the argument of the learned
Counsel, it would be convenient at the outset to ascertain the meaning of this
concept and to note how the Courts in England and India have applied it to
different situations. Cheshire and Fifoot in their book on " Law of
Contract ", 3rd Edn., observe at page " 280 thus: ' The public
interests which is designed to protect are so comprehensive and heterogeneous,
and opinions as to what is injurious must of necessity vary so greatly with the
social and moral convictions, and at times even with the political views, of different
judges, that it forms a treacherous and unstable (1) (1921) 2 K.B. 351.
433 ground for legal decision These questions
have agitated the Courts in the past, but the present state of the law would
appear to be reasonably clear. Two observations may be made with some degree of
assurance.
First, although the rules already established
by precedent must be moulded to fit the new conditions of a changing world, it
is no longer legitimate for the Courts to invent a new head of public policy. A
judge is not free to speculate upon what, in his opinion, is for the good of
the community.
He must be content to apply, either directly
or by way of analogy, the' principles laid down in previous decisions.
He must expound, not expand, this particular
branch of the law.
Secondly, even though the contract is one
which prima facie falls under one of the recognized heads of public policy, it
will not be held illegal unless its harmful qualities are indisputable. The
doctrine, as Lord Atkin remarked in a leading case, " should only be
invoked in clear cases in which the harm to the public is substantially
incontestable, and does not depend upon the idiosyncratic inferences of a few
judicial minds .......... In popular language ... the contract should be given
the benefit of the doubt "." Anson in his Law of Contract states the
same rule thus, at p. 216:
"Jessel, M. R., in 1875, stated a
principle which is still valid for the Courts, when he said: '-You have this
paramount public policy to consider, that you are not lightly to interfere with
the freedom of contract '; and it is in reconciling freedom of contract with
other public interests which are regarded as of not less importance that the
difficulty in these cases arises.....
We may say, however, that the policy of the
law has, on certain subjects, been worked into a set of tolerably definite
rules. The application of these to particular instances necessarily varies with
the conditions of the times and the progressive development of public opinion
and morality, but, as Lord Wright has said public policy, like any other branch
of the Common Law, ought to be, and I think is, governed by 55 434 the judicial
use of precedents. If it is said that rules of public policy have to be moulded
to suit new conditions of a changing world, that is true; but the same is true
of the principles of the Common Law generally. " In Halsbury's Laws of
England, 3rd Edn., Vol. 8, the doctrine is stated at p. 130 thus:
" Any agreement which tends to be
injurious to the public or against the public good is void as being contrary to
public policy................. It seems, however, that this branch of the law
will not be extended. The determination of what is contrary to the so-called
policy of the law necessarily varies from time to time. Many transactions are
upheld now which in a former generation would have been avoided as contrary to
the supposed policy of the law. The rule remains, but its application varies
with the principles which for the time being guide public opinion. " A few
of the leading cases on the subject reflected in the authoritative statements
'of law by the various authors may also be useful to demarcate the limits of
this illusive concept.
Parke, B., in Egerton v. Brownlow(1), which
is a leading judgment on the subject, describes the doctrine of public policy
thus at p. 123:
"'I Public policy' is a vague and
unsatisfactory term, and calculated to lead to uncertainty and error, when
applied to the decision of legal rights; it is capable of being understood in
different senses; it may, and does, in its ordinary sense, mean I political
expedience', or that which is best for the common good of the community; and in
that sense there may be every variety of opinion, according to education,
habits, talents, and dispositions of each person, who is to decide whether an
act is against public policy or not. To allow this to be a ground of judicial
decision, would lead to the greatest uncertainty and confusion. It is the
province of the statesman, and not the lawyer, to discuss, and of the
Legislature to determine, what is best for the public good, and to provide for
it by proper enactments. It 1s the province of the judge (1) 4 H.L.C. 1, 123;
10 E.R. 359,408.
435 to expound the law only; the written from
the statutes; the unwritten or common law from the decisions of our
predecessors and of our existing Courts, from text writers of acknowledged
authority, and upon the principles to be clearly deduced from them by sound
reason and just inference; not to speculate upon what is the best, in his
opinion, for the advantage of the community. Some of these decisions may have
no doubt been founded upon the prevailing and just opinions of the public good
; for instance, the illegality of covenants in restraint of marriage or trade.
They have become a part of the recognised
law, and we are therefore bound by them, but we are not thereby authorised to
establish as law everything which we may think for the public good, and
prohibit everything which we think otherwise. " In Janson v. Driefontein Consolidated
Mines, Ltd.(1) an action raised against British underwriters in respect of
insurance of treasures against capture during its transit from a foreign state
to Great Britain was resisted by the underwriters on the ground that the
insurance was against public policy. The House of Lords rejected the plea. Earl
of Halsbury, L.C., in his speech made weighty observations, which may usefully
be extracted. The learned Lord says at page 491:
In treating of various branches of the law
learned persons have analysed the sources of the law, and have sometimes
expressed their opinion that such and such a provision is bad because it is
contrary to public policy; but I deny that any Court can invent a new head of
public policy ; so a contract for marriage brokerage, the creation of a
perpetuity, a contract in restraint of trade, a gaming or wagering contract,
or, what is relevant here, the assisting of the King's enemies, are all
undoubtedly unlawful things;
and you may say that it is because they are
contrary to public policy they are unlawful; but it is because these things
have been either enacted or assumed to be by the common law unlawful, and not
because a judge or Court have a right to declare that such and such (1) (1902)
A.C. 484.
436 things are in his or their view contrary
to public policy.
Of course, in the application of the
principles here insisted on, it is inevitable that the particular case must be
decided by a judge; he must find the facts, and he must decide whether the
facts so found do or do not come within the principles which I have endeavoured
to describe-that is, a principle of public policy, recognised by the law, which
the suggested contract is infringing, or is supposed to infringe. " These
observations indicate that the doctrine of public policy is only a branch of
common law and unless the principle of public policy is recognised by that law,
Court cannot apply it to invalidate a contract. Lord Lindley in his speech at
p. 507 pointed out that public policy is a very unstable and dangerous foundation
on which to build until made safe by decision. A promise made by one spouse,
after a decree nisi for the dissolution of the marriage has been pronounced, to
marry a third person after the decree has been made absolute is not void as
being against public policy: see Fender v. St. John-Mildmay (1). In that case
Lord Atkin states the scope of the doctrine thus at p. 12:
" In popular language, following the
wise aphorism of Sir George Jessel cited above, the contract should be given
the benefit of the doubt.
But there is no doubt that the rule exists.
In cases where the promise to do something contrary to public policy which for
short I will call a harmful thing, or where the consideration for the promise
is the doing or the promise to do a harmful thing a judge, though he is on
slippery ground, at any rate has a chance of finding a footing........ But the
doctrine does not extend only to harmful acts, it has to be applied to harmful
tendencies. Here the ground is still less safe and more treacherous ".
Adverting to the observation of Lord Halsbury
in Janson v.
Driefontein Consolidated Mines Ltd. Lord
Atkin commented thus, at page 11:
"............... Lord Halsbury indeed
appeared to decide that the categories of public policy are closed, (1) (1938) A.
C. 1.
(2) (1902) A.C. 484.
437 and that the principle could not be
invoked anew unless the case could be brought within some principle of public
policy already recognised by the law. I do not find, however, that this view
received the express assent of the other members of the House; and it seems to
me, with respect, too rigid.
On the other hand, it fortifies the serious
warning illustrated by the passages cited above that the doctrine should only
be invoked in clear cases in which the harm to the public is substantially
incontestable, and does not depend upon the idiosyncratic inferences of a few
judicial minds ".
Lord Thankerton summarised his view in the
following terms, at p. 23:
" In the first place, there can be
little question as to the proper function of the Courts, in questions of public
policy. Their duty is to expound, and not to expand, such policy. Thai does not
mean that they are precluded from applying ail existing principle of public
policy to a new set of circumstances, where such circumstances are clearly
within the scope of the policy. Such a case might well arise in the case of
safety of the State, for instance. But no such case is suggested here. Further,
the Courts must be watchful not to be influenced by their view of what the principle
of public policy, or its limits, should be ".
Lord Wright, at p. 38, explains the two
senses in which the words " public policy" are used :
" In one sense every rule of law, either
common law or equity, which has been laid down by the Courts, in that course of
judicial legislation which has evolved the law of this country, has been based
on considerations of public interest or policy. In that, sense Sir George
Jessel, M. R., referred to the paramount public policy that people should
fulfil their contracts. But public policy in the narrower sense means that
there are considerations of public interest which require the Courts to depart
from their primary function of enforcing contracts, and exceptionally to refuse
to enforce them. Public policy in this sense is disabling 438 Then the noble
Lord proceeds to lay down the following principles on which a judge should
exercise this peculiar and exceptional jurisdiction: (1) It is clear that
public policy is not a branch of law to be extended ; (2) it is the province of
the judge to expound the law only; (3) public policy, like any other branch of
the common law, is governed by the judicial use of precedents ; and (4) Courts
apply some recognised principles to the new conditions, proceeding by way of
analogy and according to logic and convenience, just as Courts deal with any
other rule of the common law.
The learned Lord on the basis of the
discussion of case law on the subject observes at p. 40:
" It is true that it has been observed
that certain rules of public policy have to be moulded to suit now conditions
of a changing world : but that is true of the principles of common law
generally. I find it difficult to conceive that in these days any new head of
public policy could be discovered ".
The observations of the aforesaid Law Lords
define the concept of public policy and lay down the limits of its application
in the modern times. In short, they state that the rules of public policy are'
well-settled and the function of the Courts is only to expound them and apply
them to varying situations. While Lord Atkin does not accept Lord Halsbury's
dictum that the categories of public policy are closed, he gives a warning that
the doctrine should be invoked only in clear cases in which the harm to the
public is substantially incontestable, Lord Thankerton and Lord Wright seem to
suggest that the categories of public policy are well-settled and what the
Courts at best can do is only to apply the same to new set of circumstances.
Neither of them excludes the possibility of evolving a new bead of public
policy in a changing world, but they could not conceive that under the existing
circumstances any such head could be discovered.
Asquith, L. J., in Monkland v. Jack Barclay
Ltd. (1) restated the law crisply at p. 723:
"The Courts have again and again said,
that where a contract does not fit into one or other of these (1) (1951) 1 All
E.R. 714.
439 pigeon-holes but lies outside this
charmed circle, the courts should use extreme reserve in holding a contract to
be void as against public policy, and should only do so when the contract is
incontestably and on any view inimical to the public interest ".
The Indian cases also adopt the same view. A
division bench of the Bombay High Court in Shrinivas Das Lakshminarayan v. Ram
Chandra Ramrattandas observed at p. 20:
" It is no doubt open to the Court to
hold that the consideration or object of an agreement is unlawful on the ground
that it is opposed to what the Court regards as public policy. This is laid
down in section 23 of the Indian Contract Act and in India therefore it cannot
be affirmed as a matter of law as was affirmed by Lord Halsbury in Janson v.
Driefontein Consolidated Mines, Limited (1902 A. C. 484 at p. 491) that no
Court can invent a new head of public policy, but the dictum of Lord Davey in
the same case that " public policy is always an unsafe and treacherous
ground for legal decision " may be accepted as a sound cautionary maxim in
considering the reasons assigned by the learned Judge for his decision ".
The same view is confirmed in Bhagwant Genuji
Girme v.Gangabisan Ramgopal (2) and Gopi Tihadi v. Gokhei Panda (3). The
doctrine of public policy may be summarized thus:
Public policy or the policy of the law is an
illusive concept; it has been described as " untrustworthy guide ",
" variable quality ", " uncertain one ", " unruly
horse ", etc. ; the primary duty of a Court of Law is to enforce a promise
which the parties have made and to uphold the sanctity of contracts which form
the basis of society, but in certain cases, the Court may relieve them of their
duty on a rule founded on what is called the public policy; for want of better
words Lord Atkin describes that something done contrary to public policy is a
harmful thing, but the doctrine is extended not only to harmful cases but also
to harmful tendencies; this doctrine of public policy is only a branch of
common law, and, (1) I.L.R. (1920) 44 Bom. 6. (2) I.L.R. 1941 Bom71.
(3) I.L.R. 1953 Cuttack 558.
440 just like any other branch of common law,
it is governed by precedents; the principles have been crystallized under
different heads and though it is permissible for Courts to expound and apply
them to different situations, it should only be invoked in clear and
incontestable cases of harm to the public; though the heads are not closed and
though theoretically it may be permissible to evolve a new head under
exceptional circumstances of a changing world, it is advisable in the interest
of stability of society not to make any attempt to discover new heads in these
days.
This leads us to the question whether in
England or in India a definite principle of public policy has been evolved or
recognized invalidating wagers. So far as England is concerned, the passages
from text-books extracted and the decisions discussed in connection with the
first point clearly establish that there has never been such a rule of public
policy in that country. Courts under the common law' of England till the year
1845 enforced such contracts even between parties to the transaction. They held
that wagers were not illegal. After the passing of the English Gaming Act, 1845
(8 & 9 Vict. c. 109), such contracts were declared void. Even so; the Courts
held that though a wagering contract was void, it was not illegal and therefore
an agreement collateral to the wagering contract could be enforced. Only after
the enactment of the Gaming Act, 1892 (55 Vict. c. 9), the collateral contracts
also became unenforceable by reason of the express words of that Act.
Indeed, in some of the decisions cited supra
the question of public policy was specifically raised and negatived by Courts:
See Thacker v. Hardy (1); Hyams v. Stuart King (2) ;
and Michael Jeffrey & Company v. Bamford
(3). It is therefore abundantly clear that the common law of England did not
recognize any principle of public policy declaring wagering contracts illegal.
The legal position is the same in India. The
Indian Courts, both before and after the passing of the Act (1) (1878) L.R. 4
Q.B. 685. (2) [1908] 2 K.B. 696.
(3) (1949) 2 All E. R. 452.
441 21 of 1848 and also after the enactment
of the Contract Act, have held that the wagering contracts are not illegal and
the collateral contracts in respect of GI. them are enforceable. We have
already referred to these in dealing with the first point and we need not A,,
cover the ground once again, except to cite a passage from the decision of the
Judicial Committee in Ramloll Thackoorseydass v. Soojumnull Dhondmull (1),
which is directly in point. Their Lordships in considering the applicability of
the doctrine of public policy to a wagering contract observed at p. 350:
" We are of opinion, that, although, to
a certain degree, it might create a temptation to do what was wrong, we are not
to presume that the parties would commit a crime; and as it did not interfere
with the performance of any duty, and as if the parties were not induced by it
to commit a crime, neither the interests of individuals or of the Government
could be affected by it, we cannot say that it is contrary to public
policy." There is not a single decision after the above cited case, which
was decided in 1848, up to the present day wherein the Courts either declared
wagering contracts as illegal or refused to enforce any collateral contract in
respect of such wagers, on the ground of public policy. It may, therefore, be
stated without any contradiction that the common law of England in respect of
wagers was followed in India and it has always been held that such contracts,
though void after the Act of 1848, were not illegal. Nor the legislatures of
the States excepting Bombay made any attempt to bring the law in India in line
with that obtaining in England after the Gaming Act, 1892. The Contract Act was
passed in the year 1872. At the time of the passing of the Contract Act, there
was a Central -Act, Act 21 of 1848, principally based on the English Gaming
Act, 1845. There was also the Bombay Wagers (Amendment) Act, 1865, amending the
former Act in terms analogous to those later enacted by the Gaming Act, 1892.
Though the Contract (1) (1848) 4 M.I.A. 339.
56 442 Act repealed the Act 21 of 1848, it
did not incorporate in it the provisions similar to those of the Bombay Act;
nor was any amendment made subsequent to the passing of the English Gaming Act,
1892. The legislature must be deemed to have had the knowledge of the state of
law in England, and, therefore, we may assume that it did not think fit to make
wagers illegal or to hit at collateral contracts. The policy of law in India
has therefore been to sustain the legality of wagers.
The history of the law of gambling in India
would also show that though gaming in certain respects was controlled, it has
never been absolutely prohibited. The following are some of the gambling Acts
in India: The Public Gambling Act (111 of 1867); The Bengal Public Gambling Act
(11 of 1867);
The Bombay Prevention of Gambling Act (IV of
1887); Madhya Bharat Gambling Act(LI of 1949); Madhya Pradesh Public -Gambling
Act; Madras Gaming Act (111 of 1930); The Orissa Prevention of Gambling Act
(XVII of 1955); the Punjab Public Gambling Act (111 of 1867); the Rajasthan
Public Gambling Ordinance (Ordinance XLVIII of 1949) and the U.P. Public
Gambling Act. These Acts do not prohibit gaming in its entirety, but aim at
suppressing gaming in private houses when carried on for profit or gain of the
owner or occupier thereof and also gaming in public. Gaming without
contravening the provisions of the said Acts is legal.
Wherever the State intended to declare a
particular form of gaming illegal, it made "an express statute to that
effect:
See s. 29-A of the Indian Penal Code. In
other respects, gaming and wagering are allowed in India. It is also common
knowledge that horse races are allowed throughout India and the State also
derives revenue there from.
The next question posed by the learned
Counsel for the appellant is whether under the Hindu Law it can be said that
gambling contracts are held to be illegal. The learned Counsel relies upon the
observations of this Court in The State of Bombay v. R. M. D. Chamarbaugwala
(1). The question raised in that case was (1) [1957] S.C.R. 874.
443 whether the Bombay Lotteries and Prize'
Competition Control and Tax (Amendment) Act of 1952 extending the definition of
" prize competition " contained in s. 2(1)(d) of the Bombay Lotteries
and Prize Competition Control and Tax Act of 1948, so as to include prize
competition carried on through newspapers printed and published outside the
State, was constitutionally valid, It was contended, inter alia, that the Act
offended the fundamental right of the respondents, who were conducting prize
competitions, under Art. 19(1) (g) of the Constitution and also violated the
freedom of inter State trade under Art. 301 thereof This Court held that the
gambling activities in their very nature and essence were extra commercial and
could not either be trade or commerce within the meaning of the aforesaid
provisions and therefore neither the fundamental right of the respondents under
Art.
19(1)(g) or their right to freedom of inter State
trade under Art. 301 is violated. In that context Das, C. J., has collected all
the Hindu Law texts from Rig Veda, Mahabharata, Manu, Brihaspati, Yagnavalkya,
etc., at pp. 922-923. It is unnecessary to restate them here, but it is clear
from those texts that Hindu sacred books condemned gambling in unambiguous
terms. But the question is whether those ancient text-books remain only as
pious wishes of our ancestors or whether they were enforced in the recent centuries.
All the branches of the Hindu Law have not been administered by Courts in
India; only questions regarding succession, inheritance, marriage, and
religious usages and institutions are decided according to the Hindu Law,
except in so far as such law has been altered by legislative enactment. Besides
the matters above referred to, there are certain additional matters to which
the Hindu Law is applied to the Hindus, in some cases by virtue of express
legislation and in others on the principle of justice, equity and good
conscience. These matters are adoption, guardianship, family relations, wills,
gifts and partition.
As to these matters also the Hindu Law is to
be applied subject to such alterations as have been made by legislative
enactments: See Mulla's Hindu Law, para.
444 3, p. 2. In other respects the ancient
Hindu Law was not enforced in Indian Courts and it may be said that they became
obsolete. Admittedly there, has not been a single instance in recorded cases
holding gambling or wagering contracts illegal on the ground that they are
contrary to public policy as they offended the principles of ancient Hindu Law.
In the circumstances, we find it difficult to import the tenets of Hindu Law to
give a novel content to the doctrine of public policy in respect of contracts
of gaming and wagering.
To summarize: The common law of England and
that of India have never struck down contracts of wager on the ground of public
policy ; indeed they have always been held to be not illegal notwithstanding
the fact that the statute declared them void. Even after the contracts of wager
were declared to be void in England, collateral contracts were enforced till
the passing of the Gamina Act of 1892, and in India, except in the State of
Bombay, they have been enforced even after the passing of the Act 21 of 1848,
which was substituted by s. 30 of the Contract Act. The moral prohibitions in
Hindu Law texts against gambling were not only not legally enforced but were
allowed to fall into desuetude. In practice, though gambling is controlled in
specific matters, it has not been declared illegal and there is no law
declaring wagering illegal. Indeed, some of the gambling practices are a
perennial source of income to the State. In the circumstances it is not
-possible to hold that there is any definite head or principle of public policy
evolved by Courts or laid down by precedents which would directly apply to
wagering contracts. Even if it is permissible for Courts to evolve a new head of
public policy under extraordinary circumstances giving rise to incontestable
harm to the society, we cannot say that wager is one of such instances of
exceptional gravity, for it has been recognized for centuries and has been
tolerated by the public and the State alike. If it has any such tendency, it is
for the legislature to make a law prohibiting such contracts and declaring them
illegal and not for this Court to resort to judicial legislation.
445 Re. Point 3-Immorality: The argument
under this head is rather broadly stated by the learned Counsel for the
appellant. The learned counsel attempts to draw an analogy from the Hindu Law
relating to the doctrine of pious obligation of sons to discharge their
father's debts and contends that what the Hindu Law considers to be immoral in
that context may appropriately be applied to a case under s. 23 of the Contract
Act. Neither any authority is cited nor any legal basis is suggested for
importing the doctrine of Hindu Law into the domain of contracts. Section 23 of
the Contract Act is inspired by the common law of England and it would be more
useful to refer to the English Law than to the Hindu Law texts dealing with a
different matter. Anson in his Law Of Contracts states at p. 222 thus :
" The only aspect of immorality with
which Court of Law have dealt is sexual immorality............. ."
Halsbury in his Laws of England, 3rd Edn., Vol. makes a similar statement, at
p. 138:
" A contract which is made upon an
immoral consideration or for an immoral purpose is unenforceable and there is
no distinction in this respect between immoral and illegal contracts. The
immorality here alluded to is sexual immorality." In the Law of Contract
by Cheshire and Fifoot, 3rd Edn., it is stated at p. 279:
" Although Lord Mansfield laid it down
that a contract contra bonos mores is illegal, the law in this connection gives
no extended meaning to morality but concerns itself only with what is sexually
reprehensible." In the book on the Indian Contract Act by Pollock and
Mulla it is stated at p. 157:
" The epithet " immoral "
points, in legal usage, to conduct or purposes which the State, though
disapproving them, is unable, or not advised, to visit with direct
punishment." The learned authors confined its operation to acts which are
considered to be immoral according to the standards of immorality approved by
Courts. The case law both in England and India confines the operation of the
doctrine to sexual immorality. To cite 446 Only some instances: settlements in
consideration of encubinage, contracts of sale or hire of things to be used in
a brothel or by a prostitute for purposes incidental to her profession,
agreements to pay money for future illicit cohabitation, promises in regard to
marriage for consideration, or contracts facilitating divorce are all held to
be void on the ground that the object is immoral.
The word " immoral " is a very
comprehensive word.
ordinarily it takes in every aspect of
personal conduct deviating from the standard norms of life. It may also be said
that what is repugnant to good conscience is immoral.
Its varying content depends upon time, place
and the stage of civilization of a particular society. In short, no universal
standard can be laid down and any law based on such fluid concept defeats its
own purpose. The provisions of s. 23 of the Contract Act indicate the
legislative intention to give it a restricted meaning. Its juxtaposition with
an equally illusive concept, public policy, indicates that it is used in a
restricted sense;
otherwise there would be overlapping of the
two concepts.
In its wide sense what is immoral may be
against public policy, 'for public policy covers political, social and economic
ground of objection. Decided cases and authoritative text-book' writers,
therefore, confined it, with every justification, only to sexual immorality.
The other limitation imposed on the word by the statute, namely, " the
court regards it as immoral ", brings out the idea that it is also a
branch of the common law like the doctrine of public policy, and, therefore,
should be confined to the Principles recognized and settled by Courts.
-Precedents confine the said concept only to
sexual immorality and no case has been brought to our notice where it has been
applied to any head other than sexual immorality. In the circumstances, we
cannot evolve a new head so as to bring in wagers within its fold.
Lastly it is contended by the learned Counsel
for the appellant that wager is extra-commercium and therefore there cannot be
in law partnership for wager within the meaning of s. 4 of the Partnership Act;
for partnership under that section is relationship between 447 persons who have
agreed to share the profits of a business.
Reliance is placed in respect of this
contention on the decision of this Court in The State of Bombay v. R. M. D. Chamarbaugwala
(1). This question was not raised in the pleadings. No issue was framed in
respect of it. No such case was argued before the learned Subordinate Judge or
in the High Court; nor was this point raised in the application for certificate
for leave to appeal to the Supreme Court filed in the High Court. Indeed, the
learned Advocate appearing for the appellant in the High Court stated that his
client intended to raise one question only, namely, whether the partnership
formed for the purpose of carrying on a business in differences was illegal
within the meaning of s. 23 of the Contract Act. Further this plea was not
specifically disclosed in the statement of case filed by the appellant in this
Court. If this contention had been raised at the earliest point of time, it
would have been open to the respondents to ask for a suitable amendment of the
plaint to sustain their claim. In the circumstances, we do not think that we
could with justification allow the appellant to raise this new plea for the
first time before us, as it would cause irreparable prejudice to the
respondents. We express no opinion on this point.
For the foregoing reasons we must hold that
the suit partnership was not unlawful within the meaning of s. 23 of the Indian
Contract Act.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.
(1) [1957] S.C.R. 874.
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