21 April 1955
Supreme Court


Case number: Appeal (civil) 200 of 1954






DATE OF JUDGMENT: 21/04/1955


CITATION:  1955 AIR  590            1955 SCR  (2) 502

ACT:   Private  International Law-Law applicable  to  contractual obligations-English  and Continental schools of  thought-Lex situs  and "Proper Law" of contract-Partition of  India-Post partition  debt- Action for recovery where  lies-Analogy  of banking  transactions and insurance claims-Place of  primary obligation-Debt,  whether  property-Sections 3  and  130  of Transfer  of  Property  Act-Evacuee  property  laws-Pakistan (Protection  of Evacuee Property) Ordinance, 1948 (XVIII  of 1948)-Pakistan   (Administration   of   Evacuee    Property) Ordinance (XV) 1949-Whether confiscatory in nature.

HEADNOTE:    During  the  years  in question  cloth  was  rationed  at Lyallpur, then a part. of the Punjab in undivided India, and sales  could only be made to government nominees  and  other authorised  persons.  The plaintiffs, resident in  Lyallpur, were the government nominees, The 403 defendant  company,  with  its head office at  Delhi  had  a branch  office  and  mills at  Lyallpur,  and  supplied  the plaintiffs  with cloth from time to time in accordance  with the government quota through its branch manager at Lyallpur. Their dealings lasted some 4 or 5 years prior to 1947. In  accordance  with their contract the  plaintiffs  left  a security  deposit of Rs. 1,000 with the  defendant’s  branch manager  at  Lyallpur, and deposited further sums  of  money with  him  from  time to time at  Lyallpur.   The  defendant supplied  the plaintiffs with their quota of  cloth  against those  deposits.  There was thus a running  account  between the  parties  in  which the balance  was  sometimes  in  the plaintiffs’ favour and sometimes against them; when against, they  paid the defendant interest on the  "overdraft".   The goods  had  to be supplied at Lyallpur and all  moneys  were paid  there.   The  accounts were kept  at  Lyallpur  though copies were sent to the defendant’s head office at Delhi. In  1947, when India was partitioned, Lyallpur was  assigned to Pakistan.  The plaintiffs thereupon fled the country  and entered India as refugees.  They settled in -Delhi and  thus became  "evacuees"  according to a Pakistan  ordinance.   At that  time  there  was a balance of Rs.  11,496-6-6  in  the



plaintiffs’ favour.  They accordingly made a demand at Delhi for  payment  of this sum and for return of  their  security deposit. In the meanwhile the Pakistan Government issued an ordinance (1) vesting all evacuee property in the Custodian of Evacuee Property  in Pakistan (2) prohibiting the ’payment of  money to  evacuees;  and (3) requiring all moneys payable  to,  or claimable by, evacuees to be paid to the Deputy Custodian of Evacuee  Property  in Pakistan.  Payments so  made  were  to operate as a discharge from further liability to the  extent of  the  payment.  Breach of this law was punishable  as  an offence. The Deputy Custodian demanded payment from the defendant  of the   moneys   owing   to   the   plaintiff.    After   some correspondence and demur, the payment was made as  required. The defendant pleaded this as a defence to the action. Held:     (1)  Lyallpur was the place of primary  obligation because  under  the contract the balance  remaining  at  its termination  was  to  be  paid  there  and  not   elsewhere, accordingly  the demand for payment made at Delhi  before  a demand and refusal at Lyallpur was ineffective; (2)  That  the  elements out of which the  contract  to  pay arose were most densely grouped at Lyallpur, so Lyallpur was the natural seat of the contract and the place with which it had its closest and most real connection.  Accordingly,  the "proper law of the contract" was the Lyallpur Law; (3)  Under  the English doctrine also the situs of the  debt was Lyallpur; and so 404 (4)  either way, the Lyallpur law applied (5)  as it obtained at Lyallpur at the time when performance  was  due  because a " proper law" intended as  a  whole  to govern a contract is administered as a "living and  changing body  of law", accordingly, effect is given to  any  changes occurring in it before performance is due; (6)  a  "debt" being a chose in action is "property"  within the meaning of the Pakistan Ordinance and so, (7)  the money was rightly paid to the Deputy Custodian  and that  operated  as  a  good  discharge  and  exonerated  the defendant from further liability. But quaere, whether different conditions would not arise  in a  case  where no payment is made and the defendant  has  no garnishable assets in Pakistan out of which the West  Punjab Government  could  realise the debt out of  the  defendant’s property there. (8)The provisions of the Pakistan ordinance relevant to the case  are not opposed to the public policy of India  and  so can be relied on as a defence to an action of this nature.  Appeal allowed. Mount  Albert  Borough Council v.  Australasian  Temperance, etc. (1938 A.C. 224), Bonython v. Commonwealth of  Australia (1951 A.C. 201 at 219), Bank of Travancore v. Dhirt Ram  (69 I.A.  I  at 8), New York Life Insurance  v.  Public  Trustee ([1924]  2 Ch. 101 at 119), Rex v. Lovitt (1912  A.C.  212), Joachinsons  v. Swiss Bank Corporation ([1921] 3 K.B.  110), Arab  Bank  v. Barclays Bank (1954 A.C. 495 at  531),  Fouad Bishara  v.  State  of Israel ([1954]  1  A.E.R.  145).  Re. Chesterman’s  Trusts [(1923] 2 Ch. 466 at 478), Be.   Banque Des  Marchands  De Moscou ([1954] 2 A.E.R.  746),  Odwin  v. Forbes  (1817 Buck 57) and Re.  Munster ([1920] 1 Ch.  268), referred to.




   CIVIL   APPFLLATE JURISDICTION: Civil Appeal No. 200  of 1954. Under Article 133 of the Constitution and section 109 of the Code  of Civil Procedure from the Judgment and decree  dated the  6th December 1952, of the Circuit Bench of  the  Punjab High Court at Delhi (Weston C.J. and Bhandari J.) in Regular First Appeal No. 72 of 1952, arising out of the Judgment and Decree  dated  the 14th day of April 1952, of the  Court  of Subordinate Judge, Delhi in Suit No. 657 of 1950. N.   C. Chatterjee, (Tarachand Brijmohanlal and B.   P. Maheshwari, with him) for the Appellant. R. S. Narula, for the Respondent,                             405 1955.  April 21.  The Judgment of the Court was delivered by BosE J.-The defendant appeals. The  plaintiffs were the partners of a firm known as  Harnam Singh  Jagat  Singh.   Before the partition  of  India  they carried on the business of cotton cloth dealers at  Lyallpur which is now in Pakistan.  The defendant is the Delhi Cloth and General Mills Co. Ltd. It is a registered company carrying on business at Delhi and other  places and has its head office at Delhi.  One of  the places at which it carried on business before the  partition was Lyallpur.  The plaintiffs’ case is that they carried on business  with the  defendant company for some three or four  years  before 1947 and purchased cloth from the company from time to time. In  the course of their business they used to make lump  sum payments   to   the  defendant  against   their   purchases. Sometimes  these  were advance payments and  at  others  the balance was against them.  When there was an adverse balance the   plaintiffs  paid  the  defendant  interest:  see   the plaintiff Sardari Lal as P. W. 3.  On  28-7-1947 the account stood in the plaintiffs’  favour. There was a balance of Rs. 79-6-6 lying to their credit plus a  deposit  of  Rs. 1,000 as security.   On  that  day  they deposited a further Rs. 55,000 bringing the balance in their favour up to Rs. 56,079-6-6.  The defendant company delivered cloth worth Rs.  43,583-0-0 to the plaintiffs against this amount at or about that time. That  left  a balance of Rs. 11, 496-6-6.  The  suit  is  to recover this balance plus interest.  The  claim  was  decreed for Rs. 12,496-6-6  and  this  was upheld  on appeal to the High Court.  The defendant  appeals here.  The  defendant admits the facts set out above  but  defends the  action on the following ground.  It contends that  when India  was partitioned on 15-8-1947, Lyallpur,  where  these transactions took place and where the money is situate,  was assigned to Pakistan.,. The plaintiffs fled to India at this time and thus 406 became  evacuees  and  the  Pakistan  Government  froze  all evacuee  assets  and later compelled the defendant  to  hand them over, to the Custodian of Evacuee Property in Pakistan. The  defendant is ready and willing to pay the money if  the Pakistan Government will release it but until it does so the defendant  contends  that it, is unable to pay  and  is  not liable.   The  only  question is, what are  the  rights  and liabilities  of  the parties in  those  circumstances?   The amount  involved  in this suit, though substantial,  is  not large when compared with the number of claims by and against persons in similar plight.  The defendant itself is involved in many similar transactions.  A list of them appears in Ex. D-11.   Mohd Bashir Khan, D.W. 1, says that the total  comes



to  Rs. 1,46,209-1-9.  The defendant has accordingly  chosen to defend this action as a test case.  The further facts are. as follows.  At the relevant period, before   the   partition,  cloth  was   rationed   and   its distribution  controlled in, among other places, the  Punjab where Lyallpur is situate.  According to the scheme,  quotas were  allotted to different areas and the manufacturers  and suppliers  of  cloth could only distribute  their  cloth  to retailers  in accordance with those quotas, and  dealers  in those areas could only import cloth up to and in  accordance with  the  quotas  allotted  to  them.   If  the   suppliers themselves  had a retail shop or business in a  given  area, then  the  quota  for  that area  was  divided  between  the supplier  and  a Government  quota-holder  or  quota-holders called  the  nominated  importer or  importers.   The  local agency  of the suppliers was permitted to import up  to  the -portion  of the quota allotted to it in that area  and  the suppliers  were obliged to give the balance of the quota  to the Government quota-holder or holders.  The plaintiffs were the Government quota-holders for Lyallpur and the  defendant company  also carried on business there through the  General Manager of the Lyallpur Mills.  It  is admitted that the defendant owns these mills but  it is  a  matter of dispute before us whether the mills  are  a branch of the defendant company; but                             407 whatever  the exact status of the Lyallpur mills may be,  it is  clear  from  the evidence and  the  documents  that  the General  Manager  of these mills conducted  the  defendant’s cotton business at Lyallpur.  It seems that the details of the cloth distribution  scheme for Punjab, in so far as it affected the defendant  company, were contained in a letter of the 24th October 1945 from the Secretary,  Civil Supplies Department, Punjab.  That  letter has not been filed and so we do not know its exact  contents but reference to it is found in a series of letters  written by  the defendant company from Delhi to the District  Magis- trate  at Lyallpur.  Those letters range in date  from  3-1- 1946 to 19-4-1947: (Exs.  P-5 to P-12).  They are all in the same  form, only the figures and dates differ.  It  will  be enough  to quote the first, Ex.  P-5.  It is dated  3-1-1946 and  is  from  the Central  Marketing  Organisation  of  the defendant  company,  the Delhi Cloth and General  Mills  Co. Ltd.   It is written from Delhi to the District  Magistrate, Lyallpur, and is as follows:  "The District Magistrate, Lyallpur.    Re: Cloth Distribution Scheme. Dear Sir   Ref:Letter No. 15841-CL-(D)-45/8342 of 24th Oct. 1945 from Secretary, Civil Supplies Deptt.  Punjab Govt., Lahore.    Kindly  note  that  we have allotted 28  bales  for  your district  for  the  month of January 1946.  Out  of  this  a quantity of 18 bales will be despatched to our Retail stores in  your district/State and the balance of 10 bales will  be available for delivery to your nominated importer.    We  shall be obliged if you kindly issue instructions  to your  nominated  importer  to collect these  goods  from  us within  15 days of the two dates for delivery fixed,  namely by   the   20th  of  January  and  5th  of   February   1946 respectively.   It  may be noted that the first  half  quota will lapse in case delivery is 52                             408 not taken by you by the former date and the second half will lapse if not taken by the latter date.



                                Yours faithfully,                                  D.C.  &  Gen.   Mills  Co.,                                  Ltd. In  each  case a copy was sent to the plaintiffs  marked  as follows: "Copy to nominated importer:- Jagat Singh Harnam Singh, Cloth Merchants, Lyallpur".   The Indian Independence Act, 1947 was passed on  18-7-1947 and the district of Lyallpur was assigned to Pakistan  subject to  the award of the Boundary Commission. Then followed  the partition  on  15-8-1947  and  at or  about  that  time  the plaintiffs fled to India. This made them evacuees  according to  a  later  Ordinance.   But  before  that  Ordinance  was promulgated  the Assistant Director of Civil  Supplies,  who was  also an Under Secretary to the West Punjab  Government, wrote  to the defendant’s General Manager at  Lyallpur  (the General  Manager of the Lyallpur Cloth Mills)  on  17-2-1948 and told him that-    "The  amount deposited by the non-Muslim  dealers  should not be refunded to them till further orders". (Ex.  D-1).  The  defendant  did all it could, short of  litigation,  to protest  this order and -to try and get it set  aside.   Its General  Manager at Lyallpur wrote letters to the  Assistant Director of Civil Supplies on 14-4-48, 9-8-48 (Exs.  D-2 and D-4)  ,  23-4-49 (Ex.  D-7) and 6-6-49 (Ex.  D-8),  but  the replies   were  unfavourable.   On  30-4-48  the   Assistant Director said that "in no case" should the sums be  refunded (Ex.   D-3)  and  on 1-1 1-48 directed  that  these  amounts should  be deposited with the Custodian of Evacuee  Property (Ex.  D-5).  This was in accordance with an Ordinance  which was then in force.  Later,  on 8-11-48, the General  Manager received  orders  from the Deputy Custodian that the  moneys should be deposited with the Deputy Custodian(Ex.  D-6)  and on  23-6-49  these  orders were repeated  by  the  Custodian (EX.D-9). Meanwhile, the plaintiffs, who by then had shifted 409 to Delhi, made a series of demands on the defendant in Delhi for payment.  These are dated 3-1-49 (Ex.  P.W. 4/4),  27-1- 49 (Ex.  P.W. 4/1), 11-3-49 (Ex.  P.W. 4/3) and 26-3-49 (Ex. P.W.  4/2).   The defeddant’s attitude is summed up  in  its letter  to  the plaintiffs dated 12-2-49  (Ex.   P-3).   The defendant  said that its had received orders from  the  West Punjab  Government, through the Assistant Director of  Civil Supplies, not to make any refunds without the orders of  the West Punjab Government.   On  15-10-1949  the  Ordinance of  1948  was  replaced  by Ordinance  No.  XV  of 1949 (Ex.  D-26)  but  that  made  no difference to the law about evacuee funds and properties.   On  4-7-1950  the plaintiffs served the defendant  with  a notice  of suit (Ex.  P-14).  This notice was  forwarded  to the   defendant’s  General  Manager  at  Lyallpur   by   the defendant’s  Managing Director in Delhi urging  the  General Manager  to try and obtain the sanction of the  West  Punjab Government  for payment of the money to the plaintiffs;  and on 27-7-1950 the defendant wrote to the plaintiffs saying-   "We  confirm that the sum of Rs. 11,496-6-6 and Rs.  1,000 are  due  to  you on account of  your  advance  deposit  and security  deposit  respectively  with  our  Lyallpur  Cotton Mills, Lyallpur, and the sum will be refunded to you by  the said  Mills  as soon as the order of prohibition  to  refund such  deposits  issued  by the West  Punjab  Government  and served  upon the said Mills is withdrawn or  cancelled,  and



that  your claim shall not be prejudiced by the  usual  time limit of three years having been exceeded’ (Ex.  P-4).  The  defendant’s reply did not satisfy the  plaintiffs,  so they instituted the present suit on 16-12-1950. After  the  suit, the defendant’s  Managing  Director  wrote personally  to  the  Joint Secretary to  the  Government  of Pakistan  on  2-4-1951 but was told on  21-4-1951  that  the matter  had been carefully examine  and that the money  must be  deposited  with  the Custodian (Ex.   D-25).   A  second attempt  was  made  30-4-1951  (Ex.   D-24)  and  the  Joint Secretary was again approached.  Soon after, an Extraordine 410 Ordinance was promulgated on 9-5-1951 (Ex.  D-27)  exempting "cash  deposits of individuals in banks" from the  operation of  the  main Ordinance.  But the Joint Secretary  wrote  on 2-6-1951  that  this  did not apply  to  private  debts  and deposits and again asked the defendant to deposit the  Money with  the  Custodian (Ex.  D-23).   Finally,  the  Custodian issued an order on 6-11-1951 directing that the deposits  be made by the 15th of that month, "failing which legal  action will have to be taken against you". (Ex.  D-10).  The  money was  deposited on 15-11-1951 on the last day of  grace  (Ex. D-12).  The  first  question that we must determine  is  the  exact nature  of the contract from which the obligation which  the plaintiffs  seek to enforce arises.  The sum claimed in  the suit, aside from the interest, is made up of three items: (1)Rs. 79-6-6 outstanding from a previous account; (2)Rs.  11,496-6-6 being the balance of a sum of Rs.  55,000 deposited on 28-7-1947; and (3) Rs. 1,000 as security.  The  three items appear to be linked up but we’  will,  for the  moment, concentrate on the largest, the deposit of  Rs. 55,000.   Both  sides  have  spoken of  it  as  a  "deposit" throughout  but  we will have to examine  its  exact  nature because  deposits  are  of  various kinds  and  it  will  be necessary  to know which sort this was before we  can  apply the law.  Unfortunately,  the evidence is meagre and scrappy,  so  we have been obliged to piece much disjointed material together to  form an intelligible pattern.  It is admitted  that  the distribution  of  cloth in this area was controlled  by  the Government  of Punjab (in undivided India) at  all  material times.   It is also admitted that the plaintiffs were,  what were  called,  "Government nominees" for Lyallpur.   In  the plaint  the plaintiffs also called themselves  the  "reserve dealer".   This term has not been explained but the  use  of these  words and the words "nominated  importer",  indicates that  the plaintiffs occupied a privileged  ]position.   The letters (Exs.  P-5 to P-12), on 411 which  the  plaintiffs relied very strongly, also  point  to that;  Ex.  P-5, for example, shows that the  defendant  was obliged to give 10 bales out of a quota of 28 for that  area to the plaintiffs under the orders of the Punjab  Government and  could  only keep 18 for its own retail  stores  in  the month  of January 1946.  In April the defendant was  allowed to  keep all 28 but in July the distribution was 35:  25  in the  plaintiff’s favour.  In September, November (1946)  and April 1947 it was half and half.  In February and March 1947 it  was  10  : 26 and 29 : 26 for  the  plaintiffs  and  the defendant’s stores respectively.  Now,  ordinarily,  a privilege has to be paid  for  and  it seems that the price of this privilege was (1) payment of  a security  deposit of Rs. 1,000 and (2) payment of  a  second



deposit against which cloth was issued from time to time  in much the same way as a banker hands out money to a  customer against  deposits of money in a current- account, only  here the payments were issues of cloth instead of sums of  money. We draw this inference from what we have said above and from the following facts:  (1) Both sides have called the payment a "deposit" in their pleadings;  (2) The  plaintiffs speak of receiving goods "against  this deposit" (paragraph 3 of the plaint) and Mohd.  Bashir  Khan (D.W. 1) of delivery being made "against this advance";  (3) The  plaintiff  Sardari  Lal (P.W.  3)  says  that  the parties have been carrying on dealings for 3 or 4 years  and that  "advances  used to be made to the mills from  time  to time.  Sometimes our balance stood at credit";  (4) Sardari  Lal  says that when their balance was  on  the debit  side,  they  paid the defendant’s  interest  but  the defendant  paid  no  interest when the balance  was  in  the plaintiffs’  favour. (This is the position when there is  an overdraft in a bank); (5)  There  was  a balance of Rs. 79-6-6  standing  in  the, plaintiffs’ favour when the deposit of Rs. 55,000 was made; (6)  The plaintiffs said in their letter (Ex.  P.W. 4/1) 412 to the defendant that they had a "current account" with  the defendant  in which a sum of Rs. 11,496-6-6 was in  "reserve account".   This  figure of Rs. 11 ,496-6-6 is  made  up  by including the old balance of Rs. 79-6-6 in this account;  (7) In their letter Ex.  P-14 the plaintiffs said that they had "deposited" money in the plaintiffs’ account at Lyallpur "as  reserve  dealers",  against that  they  received  goods leaving  a  balance of Rs. 11,496-6-6.  Again,  this  figure includes Rs. 79-6-6.  All this shows that the payment of Rs. 55,000 was not  just an advance payment for a specified quantity of goods but was a running account very like a customer’s current account  in a  bank.  The only matter that can be said to  indicate  the contrary  is  the fact that the defendant  has  listed  this money in Ex. D-11 under the head "Purchaser’s advance".  But the mere use of this term cannot alter the substance of  the transactions  any  more  than  the  mere  use  of  the  word "deposit".  The fact that the parties choose to call it this or  that is, of course, relevant but is not conclusive,  and in order to determine the true nature of a transaction it is necessary  to  view  it as a whole  and  to  consider  other factors.  But in this case we need not speculate because the plaintiffs have themselves explained the sense in which  the term  "Purchasers  advance  account"  is  used.   In   their statement of the case which they filed here, they say-   "The defendants maintained a ’Purchasers advance  account’ in  their  books at Delhi.  The plaintiffs used to  pay  the defendants advance amounts against which cloth was  supplied and the balance had to be adjusted periodically".  But  the banking analogy must not be pushed too  far.   The stress  laid  by  the  parties  on  the  terms   "Government nominees",  "nominated importer" and Preserve dealer",  both in  the  correspondence and in the pleadings  and  evidence, suggests that the defendant was dealing with the  plaintiffs in their capacity of "Government nominees" and that, in  its turn, imports the condition that the dealings would stop the moment the plaintiffs ceased to occupy that pri-                             413 vileged position.  As we have seen, the import of cloth  was controlled  by the Punjab Government at all  relevant  times with the result that the defendant could not sell to anybody



it pleased.  The sales had to be to the Government nominees. Therefore,  if  Government withdrew their  recognition,  the defendant would not have been able to sell to the plaintiffs any longer and it is fair to assume that the parties did not contemplate  a continuance of their relationship in such  an eventuality.   But, as this was not a definite contract  for the  supply  of a given quantity of goods which were  to  be delivered  in  instalments but a course of dealings  with  a running  account,  it is also reasonable to infer  that  the parties  were  at liberty to put an end  to  their  business relationship at anytime they pleased by giving due notice to the  other side and in that event whichever side owed  money to the other would have to pay.  But, either way, the  place of  performance would, in these circumstances, be  Lyalipur. We  say this because all the known factors were  situate  in Lyallpur.   The plaintiffs were the Government nominees  for Lyallpur  and  they  were  resident  there.   The  defendant carried on business there and the goods had to be  delivered at  Lyallpur and could not be deliverer] elsewhere,  and  so performance  was  to be there.  The accounts  were  kept  at Lyallpur, and though copies appear to have been forwarded to Delhi  from time to time, the books were situate  there  and the Lyallpur office would be the only place to know the  up- to the minute state of the accounts.  In the  circumstances, it  is reasonable to assume, as in the case of  banking  and insurance  (matters we shall deal with presently),  that  on the  termination of the contract the balance was to be  paid at Lyallpur and not elsewhere.  That localises the place  of primary obligation.  This  also,  in our opinion, imports another  factor.   The defendant in Delhi would not necessarily know of any  change of   recognition   by   the   Lyallpur   authorities.    The correspondence   with  the  Collector  indicates  that   the Government  nominee cleared the goods from  the  defendant’s Lyallpur   godowns   under  the  orders  of   the   District Magistrate.  If, therefore, the 414 nominee was suddenly changed, intimation of this fact  would have  to  be given to the defendant at Lyallpur and  not  at Delhi,  otherwise  there would be a time lag  in  which  the defendant’ Lyallpur office might easily deliver the goods to the   plaintiffs   as  usual  despite  withdrawal   of   the recognition.   Everything therefore points to the fact  that the notice of termination would have to be given at Lyallpur and  the  obligation to return the balance would  not  arise until  this  notice  of  termination  was  received.    That obligation would therefore necessarily arise at Lyallpur.  The  plaintiffs’ learned counsel argued very strongly  that the defendant’s Lyallpur business was carried on from  Delhi and  that  the accounts were kept there, that there  was  no branch   office  at  Lyallpur  and  that  Lyalipur  had   no independent local control of the business.  He relied on the letters written by the defendant to the District Magistrate, Lyallpur, about the allotments of quotas (Exs.  P-5 to P-12) and  also on Ex.  D-7, a letter written by  the  defendant’s General  Manager  at  Lyallpur to the  Deputy  Custodian  of Evacuee Property at Lyallpur in which he says that a   "  Complete  list  showing the  list  of  all  non-Muslims falling  under item (3) with the amount to be paid has  been asked for from our Head Office and will be submitted as soon as received". Counsel contended that the Lyallpur people bad so little  to do with the accounts that they were notable to supply even a list  of the persons who dealt with them. they had  to  find that out from Delhi.



These  matters  should  have been put  to  the  defendant’s witnesses.   Ex.  D-7 was written in reply to a letter  from the  Deputy Custodian of Evacuee Property.  That  letter  is Ex.   D-6  and  in it the Deputy Custodian  refers  to  some earlier correspondence with the Under Secretary to the  West Punjab  Government, Lahore, which has not been filed.   When we turn to the list that was eventually supplied from  Delhi (Ex.   D-1  1)  we find that it  relates  to  accounts  from allover Pakistan such as, Multan, Peshawar, Lahore, Sialkot, Rawalpindi and even Karachi and Sukkar.  Obviously, a  local office like the Lyallpur office would not be in                             415 a  position  to  -supply  that  sort  of  information.   The defendant’s accountant at Lyallpur, Sewa Ram (P.W. 4),  says that-  "Purchasers’ deposits at Lyallpur were not recorded in  the books  of the defendant at Delhi but statements used  to  be despatched  from  there  to  Delhi.   An  account  book  was prepared from statements received from Lyallpur.  That  book is known as ’Reference Book’ ".  Presumably,  that would also be the practice of  the  other branch  offices, so the head office would be the only  place from  where a general overall picture (which appears  to  be what was asked for) could be obtained.  Now,  the  plaintiffs resided at Lyallpur at  all  relevant times and the defendant carried on business there through  a local  General Manager.  We do not know where  the  contract was made but we do know that the plaintiffs contracted in  a special  capacity that was localised at Lyallpur, namely  as the  Government  nominees for Lyallpur.  We  know  that  the goods  were  to be delivered at Lyallpur and  could  not  be delivered  anywhere else.  We know that there was a  running account  and that that account was kept at Lyallpur, and  we have  held  that  the ’debt" did not  become  due  till  the defendant  was  given notice at Lyallpur that  the  business relationship  between  the  parties  had  terminated.    The termination  came  about  because  of  acts  that  arose  at Lyallpur,  namely  the assignment of Lyallpur to  the  newly created  State of Pakistan and the flight of the  plaintiffs from Lyallpur which made further performance of the  primary contract  impossible.  The only factors that do not  concern Lyallpur  are  the defendant’s residence in  India  and  the demands  for payment made in Delhi.  The fact of  demand  is not material because the obligation to pay arose at the date of  termination and arose at Lyallpur, but if a  demand  for payment is essential, then it would, along the lines of  the banking  and insurance cases to which we shall refer  later, have  to  be made at Lyallpur and a  demand  made  elsewhere would  be  ineffective.   On these facts we  hold  that  the elements of this contract, that is to say, the contract 53 416 out of which the obligation to pay arose, were most  densely grouped  at Lyallpur and that that was its natural seat  and the  place  with which the transaction had its  closest  and most real connection.  It follows from this that the "proper law of the contract", in so far as that is material, was the Lyallpur law.  We have next to see when notice ’to close the account and a demand  for return of the balance was made and  where.   The plaintiff  Jagat Singh (P.W. 5) says that he made a  written demand in October 1947.  But the earliest demand we have  on record   is   Ex.    P.W.  4/4  dated   3-1-1949.    It   is understandable  that  the plaintiffs, who had  to  flee  for their  lives, would have no copies of their  correspondence,



but  it  is a matter for comment that the  demand  which  is filed (Ex.  P.W. 4/4) does not refer to an earlier demand or demands.   The  defendant  was  asked  to  produce  all  the correspondence  because  the plaintiffs had lost  their  own files.  The defendant produced all we have on record and  no suggestion  was  made  that anything  had  been  suppressed. Consequently  we are not prepared to accept the  plaintiffs’ statement  and we hold that there was no demand before  3-1- 1949.   Another  point is that the earlier demand, even  if  made, could  not have been made at Lyallpur.  The plaintiff  Jagat Singh  says he made the demand to the  defendant’s  Managing Director.   He  resides in Delhi and the plaintiffs  had  by then  fled from Pakistan.  Therefore, the demand  could  not have  been made at Lyallpur, and apart from  those  demands, there  is no other notice of termination,  so,  technically, the defendant would have been justified in declining to  pay on the strength of a demand made in Delhi.  The same  defect attaches  to  Ex.  P. W. 4/4.  However, we  are  fortunately absolved from the need to base on so technical a ground.  Now  at the date of the demand the Pakistan Ordinance  (Ex. D-26) was in force and under it the defendant was prohibited from  paying the money to the plaintiffs who  were  evacuees according  to  Pakistan laws.  The defendant  was  directed, instead,  to deposit the money with the Deputy Custodian  of Evacuee                             417 Property.   This was done on 15-11-1951 (Ex.  D-12) and  the deposit was made along with other similar deposits.   We now have to determine the legal liabilities which arise out  of  these  facts.  This  raises  complex  questions  of private international law, and two distinct lines of thought emerge.  One is that applied by the English Courts,  namely, the lex situs; the other is the one favoured by Cheshire  in his  book on Private International Law, namely, the  "proper law of the contract".  The  English approach is to treat the debt as property  and determine  its situs and then, in general, to apply the  law that obtains there at the date when payment is due.  But the difficulty  of the English view is that they have  different sets  of rules for ascertaining the situs, with  the  result that  the  situs shifts from place to  place  for  different purposes, also that it is determined by intention.  Thus, it can  be  in one place for purposes of  jurisdiction  and  in others  for  those of banking, insurance, death  duties  and probate.   The  situs  also varies in the  cases  of  simple contract debts and those of speciality.  That a debt is property is, we think, clear.  It is a chose in action and is heritable and assignable and it is  treated as  property  in India under the Transfer  of  Property  Act which  calls it an "actionable claim": sections 3  and  130. But  to give it position in space is not easy because it  is intangible and so cannot have location except notionally and in  order  to  give it notional position rules  have  to  be framed along arbitrary lines. Cheshire  points  out in his book on  Private  International Law,  4th edition, pages 449 to 451 that the situs  rule  is not  logical and leads to practical difficulties when  there is a succession of assignments because it is not possible to fix  the  situation of a debt under the situs  rule  in  one place  and  only  one place.  Speaking,  of  that  Cheshire, quoting  Foote,  where Foote says that the assignment  of  a chose in action arising out of a contract is governed by the "proper law of the contract" paraphrases Foote thus at  page 450-



418 "If we understand him correctly, the appropriate law is  not the  ’proper law’ (using that expression in its  contractual sense) of the assignment, but the proper law of the original transaction  out of which the chose in action arose.  It  is reasonable and logical to refer most questions relating to a debt  to the transaction in which it has its source  and  to the  legal  system  which-  governs  that  transaction.  One undeniable  merit  of this is that, where  there  have  been assignments  in different countries, no confusion can  arise from a conflict of laws, since all questions are referred to a single legal system".  The  expression the "proper law of the contract"  has  been carefully analysed by Cheshire in Chapter VIII of his’ book. In  Mount Albert Borough Council v. Australasian  Temperance and  General Mutual Life, Assurance Society(1)  Lord  Wright defined it at page 240 as  "that  law which the English or other Court is to apply  in determining the obligations under the contract",  that is to say, obligation as contrasted with  performance. Lord  Wright  drew the distinction  between  obligation  and performance  at  page 240.  In a later  case,  Lord  Simonds described it as  "the  system of law by reference to which the contract  was made or that with which the transaction has its closest  and most   real   connexion".   Bonython  v.   Commonwealth   of Australia(2).  Cheshire  sets  out the definition given by  some  American Courts at page 203 and adopts it:  "It  is  submitted  that, at any rate with  regard  to  the question of valid creation, the proper law is the law of the country   in   which  the  contract   is   localized.    Its localization  will  be indicated by what may be  called  the grouping  of its elements as reflected in its formation  and in  its terms.  The country in which its elements  are  most densely grouped will represent its natural seat the  country with  which  the  contract is  in  fact  most  substantially associated  and in which lies its natural seat or centre  of gravity". (1) 1938 A.C. 224, (2) 1951 A.C. 201, 219. 419 This involves two considerations.  The first is whether  the proper  law  is  to be ascertained  objectively  or  whether parties are free to fix it subjectively by ranging over  the world and picking out whatever laws they like from any  part of the globe and agreeing that those laws shall govern their contract.   Cheshire  points  out  at  page  202  that  "the subjective theory may produce strangly unrealistic results". It  is  also  obvious that difficulties will  arise  if  the contract  is illegal or against public policy  according  to the laws of the country in which it is sought to be enforced though lawful according to the laws of the country which the parties  choose:  see Lord Wright in  Mount  Albert  Borough Council v. Australasian Temperance, etc. Society(1) at  page 240.   Cheshire prefers the view of an American Judge  which he quotes at page 203-  "Some law must impose the obligation, and the parties  have nothing  whatsoever  to  do with that,  no  more  than  with whether their acts are torts or crimes".  The  contract  we  are considering is  silent  about  these matters.  There is no express provision either about the law that is to obtain or about the situs.  We have therefore  to



examine the rules that obtain when that is the case.  The  most usual way of expressing the law in that class  of case is to say that an intention must be implied or imputed. In the Bank of Travancore v. Dhrit )Ram(2), Lord Atkin  said that  when  no intention is expressed in  the  contract  the Courts are left to infer one by reference to  considerations where  the contract was made and how and where it was to  be performed  and by the nature of the business or  transaction to  which  it refers.  In the Mount Albert  Borough  Council case(1), Lord Wright put it this way at page 240-  "The  parties  may not have thought of the matter  at  all. Then  the Court has to impute an intention, or to  determine for  the parties what is the proper law which, as  just  and reasonable  persons,  they ought or would have  intended  if they  had  thought  about the question when  they  made  the contract". (1) 1988 A.C. 224. (2) 69 I.A. 1, 8. 420 But , to us, it seems unnecessarily artificial to impute  an intention when we know there was none, especially in a  type of case where the parties would never have contracted at all if  they bad contemplated the possibility of events  turning out as they did.  In our opinion, what the Courts really do, when there is no express provision, is to apply an objective test,  though  they appear to regard the  intention  subjec- tively,  and that is also Cheshire’s conclusion at page  201 where, after reviewing the English decisions, he says-  "In  other words, the truth may be that the judges,  though emphasising   in  unrestricted  terms  the  omnipotence   of intention,  in  fact  do nothing more  than  impute  to  the parties an intention to submit their contract to the law  of the  country  with  which  factually  it  is  most   closely connected".  If driven to a choice, we would prefer this way of  stating the  law but we need not decide this because, so far as  the present case is concerned, the result is the same whether we apply  the proper law of the contract or the  English  rules about  the  lex situs.  It may be that in some  future  case this  Court will have to choose between these two views  but the  question  bristles  with difficulties  and  it  is  not necessary for us to make the choice here.  All we wish to do here  is to indicate that we have considered both  and  have envisaged cases where perhaps a choice will have to be made.  We  gather that English judges fall back on the  lex  situs and  make rules for determining the position of a  debt  for historical  reasons.   Atkin, L. J. said in  New  York  Life Insurance  Company v. Public Trustee(1) that the rules  laid down   in   England  are  derived  from  the   practice   of ecclesiastical   authorities  in   granting   administration because their jurisdiction was limited territorially.  "The  ordinary had only a jurisdiction within a  particular territory, and the question whether he should issue  letters of administration’ depended upon whether or not assets  were to be found within his (1)  [1924] 2 Ch. 101, 119.                             421 jurisdiction,  and the test in respect of  simple  contracts was:  Where was the debtor residing?........ the reason  why the  residence  of  the debtor was  adopted  as  that  which determined where the debt was situate was because it was  in that place where the debtor was that the creditor could,  in fact, enforce payment of



the  debt".  (See     also Dicey’s Conflict of Laws, 6th edition, page 303). The rules, therefore, appear to have been  arbitrarily selected for practical purposes and because they were  found to be convenient.  But despite that the English Courts have never treated them as  rigid.   They  have only  regarded  them  as  primafacie presumptions  in  the  absence of anything  express  in  the contract  itself: see Lord Wright’s speech in  Mount  Albert Borough Council case (1) at page 240.   Also,           many exceptions have been engrafted to meet  modern   conditions. Atkin, L. J. draws attention  to   one  in  New  York   Life Insurance  Company v.Public Trustee(2) at page 120 where  he says"therefore, cases do arise where a debt may be  enforced in  one  jurisdiction,  and the debtor,  being  an  ordinary living person, resides elsewhere". So also Lord Wright in Mount Albert -Borough Council case(1) at page 240-  "It is true that, when stating this general rule, there are qualifications  to be borne in mind, as for  instance,  that the law of the place of performance will prima facie  govern the  incidents or mode of performance, that is,  performance as contrasted with obligation". and at page 241 he says-  "Again,  different considerations may arise  in  particular cases, as, for instance, where the stipulated performance is illegal by the law of the place of performance". And so also Lord Robson in Rex, v. Lovitt(3) at page 220-  "It cannot mean that for all purposes the actual  situation of the property of a deceased owner is to be (1) 1938 A.C. 224.                (2) [1924] 2 Ch. 101, 119. (3)1912 A.C. 212. 422 ignored  and regard had only to the testator’s domicil,  for executors  find  themselves  obliged in  order  to  get  the property  at all to take out ancillary probate according  to the  locality where such property is  properly  recoverable, and  no legal fiction as to its ’following the owner’ so  as to be theoretically situate elsewhere will avail them".  And  he  says at page 221 that these rules  are  only  "for certain limited purposes".  In  banking  transactions  the  following  rules  are   now settled: (1) the obligation of a bank to pay the cheques  of a  customer rests primarily on the branch at which he  keeps his account and the bank can rightly refuse to cash a cheque at  any  other  branch: Rex v. Lovitt(1)  at  219,  Bank  of Travancore  v.  Dhrit  Ram(2) and New  York  Life  Insurance Company  v.  Public Trustee(3) at page 117; (2)  a  customer must  make  a  demand for payment at the  branch  where  his current  account  is kept before he has a  cause  of  action against  the bank: Joachimson v. Swiss  Bank  Corporation(4) quoted  with  approval  by Lord Reid in Arab  Bank  Ltd.  v. Barclays Bank(5).  The rule is the same whether the  account is  a  current account or whether it is a case  of  deposit. The  last  two cases refer to a current account;  the  Privy Council.  case  (Bank of Travancore v. Dhrit Ram(2))  was  a case of deposit.  Either way, there must be a demand by  the customer at the branch where the current account is kept, or where  the  deposit is made and kept, before the  bank  need pay, and for these reasons the English Courts hold that  the situs of the debt is at the place where the current  account is kept and where the demand must be made.  This  class of case forms an exception to the rule  that  a debtor  must seek his creditor because, though that  is  the general  rule, there is nothing to prevent the parties  from



agreeing,  if they wish, that that shall not be the duty  of the  debtor  and,  as Lord Reid explains in  the  Arab  Bank case(5)   at  page  531,  a  contract  of  current   account necessarily implies an (1) [1912] A.C. 212.             (2) 69 I.A. 1, 8 and 9. (3) [1924] 2 Ch. 101, 119.       (4) [1921] 3 K.B. 110. (5)[1951] A.C. 495, 531.                             423 agreement that that shall not be the bank’s duty,  otherwise the whole object of the contract would be frustrated. We  have stressed the word "primarily" because the rules  we have set out relate to the primary obligation.  If the  bank wrongly  refuses to pay when a demand is made at the  proper place and time, then it could be sued at its head office  as well  as  at its branch office and,  possibly,  wherever  it could  be  found,  though we do not decide  that.   But  the reason  is that the action is then, not on the debt, but  on the breach of the contract to pay at the place specified  in the  agreement:  see Warrington, L. J. at page 116  and  Atk in,  L.  J. at page 121 of New York Life Insurance  Co.   V. Public Trustee(1). Now  the  rules  set  out above are  not  confined  to  the business of banking.  They are of wider application and have also been applied in insurance cases: Fouad Bishara  Jabbour v.  State  of Israel(2) and New York Life Insurance  Co.  v. Public Trustee(1).  Similar   considerations   obtain  in   England   when   an involuntary assignment of a debt is effected by garnishment. Cheshire has collected a list of English cases at pages  460 to  463 of his Private International Law from which we  have quoted above.  He sums up the position at page 461 thus-  "It  is difficult to state the rule with exactitude but  it is probably true to say that a debt is properly  garnishable in  the country where, according to the ordinary  usages  of business, it would normally be regarded as payable".  But when all is said and done, we find that in every one of these cases the proper law of the contract was applied, that is to say, the law of the country in which its elements were most  densely grouped and with which factually the  contract was  most closely connected.  It is true the judges  purport to  apply  the leX Situs but in determining the  situs  they apply  rules  (and  modify  them  where  necessary  to  suit changing modern conditions) which in fact are the very rules (1) [1924] 2 Ch. 101. (2) [1954] 1 A.E.R. 145, 424 which in practice would be used to determine the proper  law of  the  contract.   The English Judges say  that  when  the intention is not express one must be inferred and the  rules they  have  made come to this: that as reasonable  men  they must  be taken to have intended that the proper law  of  the contract  should  obtain.   The  other  view  is  that   the intention  does  not govern even when express and  that  the proper law must be applied objectively.  But either way, the result  is  the  same when there is no  express  term.   The "proper law," is in fact applied and for present purposes it does  not matter whether that is done for the reasons  given by  Cheshire or because the fluid English rules that  centre round  the  lex situs lead to the same  conclusion  in  this class of case. That,  however,  raises a further question.   Which  is  the proper law?  The law that obtains when the contract was made and the obligation fashioned or the law in force at the time when performance is due?  Here again, we think the answer is correctly  given  by Cheshire at page 210,  quoting  Wolff’s



Private  International Law, page 424, and Be.   Chesterman’s Trusts(1):  "A  proper law intended as a whole to govern a contract  is administered  as  ’a living and changing body  of  law’  and effect  is  given to any changes occur. ring  in  it  before performance falls due". This  is what the English Courts did in New  York  Insurance Co.  v.  Public  Trustee(2), Re.  Banque  Des  Marchands  De Moscou(3), Fouad Bishara Jabbour v. State of Israel(4),  and Arab  Bank Ld. v. Barclays Bank(5).  They were all cases  in which  the  law changed because of the outbreak of  war  and where   performance  became  impossible  because  of   local legislation.  In the last two cases, the debts vested in the Custodian  because of local legislation and payment  by  the debtor to the Custodian was regarded as a good discharge  of the debt.  The position in those two cases was just what  it is here. (1)[1923]  2 Ch. 466, 478.       (2) [1924] 2 Ch.  101. (3) [1954] 2 A.E.R. 746.        (4) [1964] 1 A.E.R. 115. (5)[1954] A.C. 495, 529. 425 Counsel argued that as Lyallpur was part of India, when  the contract  was made, the Indian law must be applied and  that no  different intention can be imputed to the parties.   But that  is not the law, as we understand it, whether we  apply the "proper law" or the situs rules.  The proper law will be the law at Lyallpur applied as a living and changing  whole, and this would have been the case even if India had not been divided, because each State had the right to make  different local laws even in undivided India, as witness the different money  lending laws and the cloth and grain control  orders: indeed  this very case is an illustration of that,  for  the controls  which  gave rise to this very  contract  were  not uniform  throughout India.  But even apart from the  "proper law"  the decision of the Privy Council in Arab Bank Ld.  v. Barclays  Bank(1) and of the Queens Bench Division in  Fouad Bishara  Jabbour  v. State  of Israel (2  )  negatives  this contention when ail intention has to be imputed or a  clause in the contract implied.  It  is  necessary,  however, to bear in  mind  that,  under modern conditions, choses in action arising out of  contract have  two  aspects: (1) as property and (2) as  involving  a contractual obligation for performance.  The property aspect is  relevant  for purposes  of  assignment,  administration, taxation   and   the  like;  the  contractual   aspect   for performance.    In  the  present  case,  we  are   primarily concerned  with  the property aspect  because  the  Pakistan Ordinance  regards debts as property and vests  all  evacuee property in the Custodian and requires every person  holding such  property to surrender it to the Custodian on  pain  of penalties  prescribed  by the Ordinance, and  section  11(2) states that-  "Any person who makes a payment under subsection  (!)-shall be discharged from further liability to pay to the extent of the payment made".  The  payment was made and that, in our opinion,  exonerated the  defendant from further liability.  Such  payment  would operate  as a good discharge even under the  English  rules: see Fouad Bishara Jabbour v. (1) [1954] A.C. 495, 529. (2) [1994] 1 A.E.R. 145 426 State  of  Israel(1) at page 154 where a number  of  English authorities  are  cited, including a decision of  the  Privy Council in Odwin v. Forbes(2).  That was also the result  of



the  decisions  in the following English  cases,  which  are similar  to this, though the basis of the decisions was  the situs   of   the  debt  and  the   multiple   residence   of corporations:  Fouad Bishara Jabbour v. State of  Israel(1), Be  Banque Des Marchands De Moscou(3) and Arab Bank  Ld.  v. Barclays Bank (4). The  same result follows from the decision of  the  Judicial Committee  in  the Bank of Travancore Ltd. v.  Dhrit  Ram(5) where Lord Atkin said-   "When  consideration is being given to the question,  what law did the parties intend to govern the contract? it  seems proper  to  bear  in  mind  that  the  promisor  is  a  bank incorporated  under  Travancore law with,  apparently,  some connection with the State of Travancore, and governed as  to its  business  by  any law of  Travancore  that  may  affect banking........  The  only difference between that case and this is that  at the date of the deposit in this case there was no difference between  the laws of Punjab and Delhi on the present  point. But  they  could have differed even if India  had  not  been divided,  as  we have just pointed out.  The  English  cases are, however, in point and we can see little in principle to distinguish them from this case.  The  learned counsel for the plaintiffs-respondents  argued that  even  if the law is what we have  said,  the  Pakistan Ordinance  does  not  apply to this  case  because  "a  cash deposit  in a bank" is excluded.  The argument was based  on the  definition  of  "property"  in  section  2(5)  of   the Ordinance.   But  this is not a cash deposit in  a  bank  as between  the  plaintiffs and the defendant.  It  is  a  debt which  the defendant owes, or owed, to the  plaintiffs,  and the  same  definition states that  "property"  means,  among other  things, any debt or actionable claim The  portion  of the  definition which speaks of a "cash deposit in  a  bank" means that such a deposit is not to be treated as (1) [1954] 1 A.E.R. 145.        (2) 1817 Buck. 57. (3) [1954] 2 A.E.R. 746.        (4) [1954] A.C.. 495, 529, (5)69 I. A. 1, 9. 427 "property" for the purposes of the Ordinance as between  the bank and the customer who owns or controls the deposit.   We hold, therefore, that whether the proper law of the contract applies or the English law of situs in a case of this  kind, the   defendant  is  exonerated  because,  the  debt   being "property",-  the  Ordinance  divested  the  plaintiffs   of ownership in it and vested the debt in the Custodian and  at the same time interfered with the obligation for performance by providing that payment to the Custodian shall operate  as a discharge of the obligation.   But  we  wish  to emphasize that we  decide  this  because payment  was  in  fact made to the  Custodian  and  that  we express  no opinion about what would happen in a case  where there  is  no payment and the defendant has  no  garnishable assets  in Pakistan out of which the West Punjab  Government could  realise  the debt by attachment  of  the  defendant’s property.   Different  conclusions might possibly  arise  in such a case.  Lastly, it was urged that the Pakistan Ordinance is a penal law and is confiscatory in character, therefore, no domestic tribunal  will  recognise  it or give effect  to  it.   That proposition is, in any event, too widely stated, but we  are unable to condemn this law as opposed to the public  -policy of  this country be,cause we have exactly the same  kind  of laws  here,  as  do other  civilised  countries  which  find themselves in similar predicament or at the outbreak of war;



see  Arab  Bank  Ltd. v. Barclays  Bank(1)  and  also  Fouad Bishara  Jabbour v. State of Israel(2) and  Re.   Munster(3) where  a  like  argument was repelled.  We  hold  that  this legislation is not confiscatory.  The  same rules apply to the item of Rs. 79-6-6 and to  the deposit of Rs. 1,000 as security. The  appeal succeeds.  The decrees of the lower  Courts  are set  aside.   A  decree will now be  passed  dismissing  the plaintiffs’ claim, but in the special circumstanoes of  this case the parties will bear their own costs throughout. (1) 1954 A.C. 495.           (2) [1954] 1 A.E.R. 145, 157, (3) [1920] 1 ch.268. 428