12 May 1954
Supreme Court


Case number: Appeal (civil) 88 of 1953






DATE OF JUDGMENT: 12/05/1954


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.



JUDGMENT:    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.