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PETITIONER: V.   NARASIMHA RAJU

       Vs.

RESPONDENT: V.   GURUMURTHY RAJU AND OTHERS

DATE OF JUDGMENT: 22/08/1962

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. GUPTA, K.C. DAS DAYAL, RAGHUBAR

CITATION:  1963 AIR  107            1963 SCR  (3) 687  CITATOR INFO :  R          1965 SC 166  (7)  RF         1992 SC 248  (58,59,60)

ACT: Arbitration-Agreement   of   reference-Consideration   found unlawful-Legality of the award-Agreement for arbitration  on withdrawal  of criminal case-Public  policy-Indian  Contract Act, 1872 (9 of 1872), s.23.

HEADNOTE: In  respect of a business which the appellant and the  first respondent were carrying on in partnership along with others till  September 15,1942, the first respondent demanded  that the  account should be made and the profit? divided  between the partners.  Disputes arose when dividing the profits that whereas  the first respondent claimed for himself alone  the amount  due  to him and the fourth  respondent,  the  latter demanded  that  the said amount should be divided  half  and half  between them.  The first respondent then proceeded  to file a criminal complaint in the Magistrate’s court  against the  partners  including the appellant in which  he  alleged that  the accused persons hid committed offences  under  ss. 420,  465,  468 and 477 read with ss. 107 and 120-B  of  The Indian  Penal  Code.   The  charge  levelled  by  the  first respondent was that the accounts of the partnership had been fraudulently  altered  with a view to show test  the  fourth respondent  was entitled to share equally the  profits  with the  first respondent.  Process was issued on the  complaint and  the  matter  stood adjourned for  hearing  to  December 30,1943.  On that date the first respondent and the  accused persons  entered into an’ agreement under which the  dispute between  the appellant and others and the  first  respondent was  to  be  referred to a named  arbitrator  on  the  first respondent  agreeing  to withdraw  his  criminal  complaint. Accordingly  after the complaint was dismissed on the  first respondent  intimating to the Court that he had no  evidence to support his case, the agreement signed by the parties was handed   over  to  the  arbitrator.   In  due  course,   the arbitrator  pronounced  his award and the  first  respondent took  steps to have a decree passed in terms of the  a-ward. Thereupon  the  appellant  filed an  application  under  the

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provisions  of the Arbitration Act, 1940, for setting  aside the  award  on  the ground that the  consideration  for  the arbitration agreement was unlawful as it was 688 the  promise  by the first respondent not to  prosecute  his complaint  which  involved a non-compoundable  offence  and, therefore,  the  agreement  was invalid under  s.23  of  the Indian Contract Act, 1872. Held, that the arbitration agreement executed by the parties on December 30, 1943, was invalid under s. 23 of the  Indian Contract Act, 1872, because its consideration was opposed to public   policy.   Consequently  the  award  could  not   be enforced. Bhowanipur  Banking  Corporation Ltd.  v.  Sreemati  Durgesh Nandini  Dassi, A. 1. R. 1941 P. C. 95, Kamini Kumar Basu  & Ors.  v.  Birendra Nath Basu & Anr., L.R. 57 I. A.  117  and Sudhindra  Kumar v. Ganesh Chandra (1939)1 Cal. 241,  relied on.

JUDGMENT: CIVIL APPELATE, JURISDICTION :Civil Appeals Nos. 494 and 495 of 1957. Appeals from the Judgment and decree dated March 5, 1954, of the  Orissa High Court in Mies.  Appeals Nos. 25 and  26  of 1949. A.V.  Viswanatha Sastri and T. V. B. Tatachari,  for  the appellant. M. S. K. Sastri for respondent No. 1. 1962 August 22.  The Judgment of the Court was delivered by GAJENDRAGADKAR, J.- The short question which arises in these two   appeals  is  whether  the  Muchalika   (Agreement   of Reference) which was executed by the appellant and the  four respondents in favour of Tanguda Narasimhamurty on the  30th of December, 1943, is invalid because its consideration  was opposed to public policy under s. 23 of the Indian  Contract Act.  Both the trial Court and the High Court of Orrisa have answered  this question in the negative, and the  appellant, who has come to this Court with a certificate granted  689 by  the  High  Court under Art.  133  of  the  Constitution, contends that the said conclusion is contrary. to law. It   appears  that  the  appellant  took  a  lease  of   the Parlakimedi  Samasthanam Rice and Oil Mill for  three  years from  1941 to 1944 under a registered lease-deed on the  9th December.  1940.  The rent agreed to be paid was  Rs.  7,000 per annum., For the working of the Mill, the appellant  took six  partners with him and their shares in  the  partnership were  duly determined.  The partnership carried on the  work of milling rice and extracting oil from ground-nuts. The appellant also carried on another business in paddy  and ground-nuts and in this business too he took as his partners four out of his six partners in the business of milling rice and extracting oil from ground-nuts.  Amongst these partners was  respondent  No.  IV.   Gurumurty  Raju.   This   latter busssiness was carried on for about 14 months until the  end of  March, 1942.  Two of the partners then retired from  the said business and took away their shares in the Capital  and the  profits.   The remaining.three partners  continued  the business  of  the firm; the appellant  had  As.0.7.3  share, respondent No. 2 had 0.6.9 share and respondent No. 1  along with  respondent  No.  4.  had   0.2.0  share.   Thus,   the partnership, in fact, consisted of five partners respondents 1 and 4 being together entitled to a share of As. 0.2.0. The

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business  of  the  partnership  thus  carried  on  by  these partners went on till the 15th September, 1942.   Respondent No. 1 then demanded that the accounts should be made and the profits divided between the partners. As a result of  this demand, the-partnership wasstopped,  accounts  were  made and profits divided. The appellant and respondent 690 No. 2 took away their respective amounts, but respondent No. 1  claimed  for  himself alone the amount  due  to  him  and respondent No. 4, whereas respondent No. 4 demanded that the said amount should be divided half and half between him  and respondent  No.  1. That is how a dispute  arose  about  the share of respondent No. 1. Respondent No. 1 then proceeded to file a criminal complaint in  the Court of the Joint Magistrate at  Berhampur  against six persons, including the appellant. In this complaint he alleged that the six     accused   persons   had   committed offences underss.  420, 465, 468 and 477 read with se.  107 and  120-B of the Indian Penal Code.  The substance  of  the charge  thus  levelled  by respondent No.  1  was  that  the accounts  of the partnership had been  fraudulently  altered with  a view to show that respondent No. 4 was  entitled  to share  equally the profits with respondent No. 1.  In  these proceedings, respondent No. 1 obtained an attachment of  the account-books  of  the  two businesses  carried  on  by  the appellant  with his partners.  This criminal  complaint  was numbered as Criminal Case No. 139 of 1943, and after process was issued on it and some preliminary steps had been  taken, it stood adjourned for hearing to December 30, 1943. On  December  30,  1943, respondent No. 1  and  the  accused persons  entered into an agreement (Exbt. 1) as a result  of which  the  dispute  between the appellant  and  others  and respondent   No.  1  was  agreed  to  be  referred  to   the arbitration of Mr. Murty on the respondent No. 1 agreeing to withdraw  his  criminal complaint.   Accordingly,  when  the criminal  case  was  called out for hearing  on  that  date, respondent  No. 1 stated that he had no evidence to  support his  case  and  so, the complaint  was  dismissed;  and  the arbitration paper signed by 691 the  parties was handed over to the arbitrator,  Mr.  Murty. That  is how the impugned arbitration. agreement came to  be passed  between  the  parties  and  Mr.  Murty  came  to  be appointed an arbitrator. The   arbitrator  then  began  his  proceedings  and   after recording  evidence,  he pronounced his  award  ex-parte  on September  14,  1946,  During  the  pendency  of  the   said arbitration  proceedings, the, appellant had applied to  the Subordinate  Judge at Berhampur for removing the  arbitrator on the ground of his misconduct under ss, 5 and II of  the,, Arbitration  Act  (M.J.C.  No.  34  of  1944).   The  said., application  was dismissed.  The appellant then preferred  a Revisiona.I Application against the order of the trial Judge (Revision.Petition  No.  C.R.  78 of  1946),  but  the  said petition was also dismissed’ on March 26, 1949.  Pending the disposal  of  the.  said Revision Petition,  the  award  was pronounced on September 14, 1946. After  the award was thus pronounced, respondent No. 1  made an  application  to the Subordinate ;Judge at  Berhampur  on December 10, 1946, (M.J.C. No. 105 of 1946) under ss. 14 and 30  of the Arbitration Act for the filing of the  award  and for passing a decree in terms thereof.  The appellant  filed an application on January 14, 1947, in the same Court  under s.  33  of the Arbitration Act for setting aside  the  award

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(M.J.C. No. 8 of 1947).  To both these applications, all the parties to the Reference and the Arbitrator were  impleaded. By his application, the appellant claimed the setting  aside of  the award on several grounds, one of which was that  the arbitration agreement was invalid under s. 23 of the  Indian Contract   Act.    Both  the  Courts  have   rejected   this contention.   In  the result, the  application  for  setting aside of the award made by the appellant has been  dismissed and  the application made by respondent No. 1 for passing  a decree in terms 692 of  the award has been allowed.  Both the Courts  have  also considered and rejected the other contentions raised by  the appellant in support of his plea that the award was invalid; but  for the purpose of these appeals, it is unnecessary  to refer  to  he  said findings, because we have  come  to  the conlusion that the appellant is right in contending hat  the arbitration agreement is invalid under s.    23    of    the Indian Contract Act. Section 23 provides that every agreement of which the object or consideration is unlawful is void, and it lays down  that the  consideration of an agreement is lawful  unless,  inter alia,  it  is opposed to public policy.  Agreement  made  by parties for stifling prosecution are not enforced by  Courts on the ground that the consideration for such agreements  is opposed to public policy.  If a person sets the machinery of the  Criminal  Law into action on the  allegation  that  the opponent has committed a non-compoundable offence and by the use  of  this  coercive  criminal  process  he  compels  the opponent to enter into an agreement, that agreement would be treated as invalid for the reason that its consideration  is opposed  to public policy.  Under the Indian  Law,  offences are  divided  into three categories, some  are  compoundable between the parties, some are compoundable with the leave of the  Court  and some are non-compoundable.  In  the  present case, it is common ground that amongst the offences  charged by  respondent No. 1 against the appellant and  others  were included  non-compoundable offences, and so, we are  dealing with  a ease where, according to the appellant,  a  criminal process  was issued in respect of non-compoundable  offences and  the  withdrawal  of  the  criminal  proceedings  was  a consideration  for the agreement of reference to  which  the appellant  has  put  his  signature.   Whether  or  not  the appellant 693 proves his case, we will consider later; but the true  legal position on this point is not in doubt.  If it is shown that the  consideration  for the arbitration  agreement  was  the withdrawal   and   the  non-prosecution  of   the   criminal complaint,  then  the  provisions of s.  23  of  the  Indian Contract  Act would be attracted.  The principle  underlying this  provision  is  obvious.  Once  the  machinery  of  the Criminal  Law  is set into motion on the allegation  that  a non-compoundable  offence has been committed, it is for  the criminal courts and criminal courts alone to deal with  that allegation and to decide whether the offence alleged has  in fact  been committed or not.  The decision of this  question cannot  either  directly or indirectly be taken out  of  the hands  of  criminal courts and dealt with by  private  indi- viduals.  When as a consideration for not proceeding with  a criminal  complaint, an agreement is made, in  substance  it really means that the complainant has taken upon himself  to deal with his complaint and on the bargaining counter he has used his non-prosecution of the complaint as a consideration for  the  agreement which his opponent has been  induced  or

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coerced  to enter into.  As Mukherjea, J.. has  observed  in Sudhindra  Kumar v. Ganesh Chandra(1) "no Court of  law  can countenance  or give effect an agreement which  attempts  to take  the  administration  of law out of the  hands  of  the judges  and  put  in  the  hands  of  private  individuals." Therefore, it is clear that if the appellant proves that the consideration for the arbitration agreement was the  promise by respondent No. 1 not to prosecute his complaint, then the said consideration would he opposed to public policy and the agreement based on it would be invalid in law. In  this  connection. it would be relevant to refer  to  two decisions  of  the  Privy  Council.  in  Bhowanipur  Banking Corporation  Lid. v. Sreemati Durgesh Nandini  Dasi(2)  Lord Atkin has observed (1) [1939] I Cal. 241, 250.  (2) A.I.R. 1941 P.C. 95. 694 that to insist on reparation as a consideration for  promise to  abandon criminal proceedings is a, serious abuse of  the right  of private prosecution.  The citizen who proposes  to vindicate the criminal law must do so wholeheartedly in  the interests of justice, and must not seek his own  advantage.’ In’  dealing  with  the question as to  whether  the  consi- deration  for the agreement is opposed to public  policy  or not,  it is immaterial that the debt in respect of which  an agreement  is made for the illegal consideration  was  real, nor  is it necessary to prove that a crime in fact had  been committed.  All that is necessary to prove in such a case is "that  each party should understand that the one  is  making his  .’promise in exchange or part exchange for the  promise of the other not to prosecute or continue prosecuting".   In that case, a mortgage bond was executed by the respondent as ’a  part of the consideration for a promise by the  bank  to withdraw  criminal proceedings instituted by it against  the mortgagor’s  husband, and it was held by the  Privy  Council that  the mortagage bond was invalid.  In dealing  with  the question  that  the debt which was a consideration  for  the mortgage  bond was real, their Lordships observed  that  the existence  of  the debt made no difference  at  all  because whether  or  not the debt was real, the  mortgage  had  been executed  for  a consideration which was opposed  to  public policy and so, it became illegal and void. In  Kamini  Kumar  Basu v.  Virendra  Nath  Basu,(1),  their Lordships held that ,if it is an implied term of a reference to  arbitration, and of an "ekrarnama pursuant to an  award, that  a complaint that a non-compoundable offence under  the Indian Penal Code has been committed shall not be  proceeded with, the consideration is unlawful on the ground of  public policy, and the award and ekrarnama are, (1) [1930] L.R. 57 I.A. 117. 695 therefore, unenforceable, and this would be so  irrespective of whether in law a prosecution has been commenced or  not". In that case, the criminal case was withdrawn the day  after the  execution  of the impugned agreement, but  it  appeared that prior to the execution of the agreement, there bad been an  understanding  between  the  parties  that  they   would withdraw  from their respective criminal cases.   Sir  Binod Mitter who delivered the judgment of the Board observed that in  such  cases, it is unlikely that it would  be  expressly stated in the ekrarnama that a part of its consideration was an  agreement to settle the criminal proceedings. it  would, however,  be  enough  for the parties  which  impeached  the validity  of the agreement to give evidence from  which  the inference necessarily arises that part of the  consideration was unlawful.  It is in the light of these decisions that we

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will  have  to  consider  the question  as  to  whether  the appellant  has succeeded in showing that  the  consideration for  the agreement of reference in the present case was  the withdrawal  and  non-prosecution of the  criminal  complaint filed by respondent No. 1. We will first refer to the complaint filed by respondent No. 1  against the appellant and others.  In this  complaint  it was alleged that all the accused persons conspired with each other  with intent to defraud respondent No. 1 of a half  of his 2 annas share in the partnership assets and altered  the account books of both the Rice and Oil Mills, and the  joint business in material parts by inserting the name of the  4th respondent  by the side of respondent No. 1’s name in  order to make it appear that the 4th respondent also owned the two annas share along with or jointly with respondent No. 1.  It is  on  the basis of this allegation that respondent  No.  1 complained that the accused persons ’including the appellant bad committed offences under ss. 420, 465, 468 and 477 696 read  with  sections 107 and 120-B. 1. P. C.  It  is  common ground  that  process was issued on this  complaint  and  it stood adjourned for hearing to December 30, 1943. On December 30, 1943, the arbitration agreement was  entered into  by  the  parties.  This  document  consists  of  eight clauses.   It purported to authorise Mr. Murty to  determine whether 2 annas share belonged exclusively to respondent No. 1 or jointly to respondents 1 and 4; and it also  authorised him to determine incidental and subsidiary issues in respect of respondent No. 1’s claim for his share in the profits  of the  partnership.  Clause 5 of the agreement  provided  that the  arbitrator was to determine who and in what manner  are to  bear the costs incurred by both the parties in  Criminal Case No. 139 of 1943 on the file of Berhampur 2nd  Officer’s Court, according to justice and injustice.  In other  words, the  arbitrator  had to decide not,only  the  civil  dispute between  the  parties  resulting  from  the  claim  made  by respondent  No. 1 to two annas share in the profits  of  the partnership,  but  also to determine the dispute  about  the expenses in the criminal proceedings. Let   us   now  examine  the  evidence   which   shows   the circumstances under which the arbitration agreement came  to be executed.  Mr. Murty who has been examined for respondent No.  1  L  stated that he did not suggest  any  term  to  be embodied  in  the fair draft and he could not say  at  whose instructions the draft was written because it was written in his  absence.   Then  he added that  the  parties  gave  the Muchalika to him first and as he was returning with it, they told him that they would intimate about the Muchalika to the Criminal Court and lot him know court’s orders thereon.   He also pleaded that he could not say if the 1st respondent had any idea that after the Muchalika was given to him, he would 697 withdraw  the case.  The Muchalika has been attested by  two witnesses  both  of whom have given evidence in  this  case. Sitharamaswamy  is one of the two attesting  witnesses.   He has stated that the parties had gathered at about 1 or 2  p. m. in the Court hall of the Sub-Collector’s Court where  the criminal  case  was going to be heard.  1  he  document  was executed to bring the criminal case between the parties then pending  to a close.  After the document was  executed,  the criminal  case  was  got  cancelled.   The  1st   respondent definitely  stated  that  he would  withdraw  the  case  and accordingly  he went to the criminal court and got the  case dismissed.   Thereafter,  the original of the  document  was handed over to the arbitrator.  It is significant that  this

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witness  who  has  attested  the document  was  one  of  the witnesses  called by respondent No. 1 in the  criminal  case filed by him against the appellant and others and in fact be had come to the criminal court to give evidence on that day. To  the same effect is the evidence of the  other  attesting witness Jayachandra Padhi.  After the agreement was  scribed and duly executed, respondent No. 1 told the criminal  court about  his inability to prove his case and  accordingly  the case  was dismissed.  Then all the parties gathered  on  the court  verandah and the appellant handed over the fair  copy of  the  agreement  to the arbitrator.   According  to  this witness, the reference was executed in order that respondent No. 1 should withdraw the criminal case and the  arbitration should settle their dispute.  This witness expressly  stated that  the  condition was that after the  criminal  case  was withdrawn,  the  reference  was to be  handed  over  to  the arbitrator. The other witness examined by the appellant is Appa Rao.  He refers  to  the circumstances under  which  the  arbitration agreement was executed and adds that the appellant kept  the final draft with 698 him and handed it over to the arbitrator after the  criminal complaint  was  dismissed.   It appears that  Appa  Rao  was confronted with his prior statement made in the  proceedings started  by  the  appellant to  remove  the  arbitrator  for misconduct.   We  will  have  occasion  to  refer  to   this statement later on. The appellant has stated on oath in support of his case that respondent  No. 1 agreed to with draw the criminal case  and not  to  prosecute  it an it was in  consideration  of  that promise  that hentered into the arbitration  agreement.   In his evidence he has added that after the criminal  complaint was  filed, the partnership books were seized and the  joint business  did  not continue.  According to  him,  Mr.  Murty offered  to effect a compromise if a reference was  made  to him and’ get the case withdrawn.  It was at that stage  that pleaders  of  both  the  sides prepared  the  draft  of  the agreement.  Then the witness has narrated how respondent No: 1  went to the court and stated that he was unable to  prove his  case  whereupon the complaint was dismissed,  Then  the parties came out and the agreement was delivered over to Mr. Murty.  The evidence of this witness clearly shows that  the agreement  was executed by him because he was promised  that the  criminal  case would be taken out if  he  executed  the agreement.  That is the evidence adduced by the appellant in support of his case that the consideration of the  agreement was  the  promise of respondent No. 1 not to  prosecute  his case  and  that in fact the document was given over  to  the arbitrator  after the promise was carried out by  respondent No. 1 and the criminal case was dismissed. Respondent   No.  1  in  his  evidence  has  not  made   any categorical statement to the contrary.  He has admitted  the circumstances  disclosed by the appellant and his  witnesses as to the place  699 where,  the time when and the manner in which the  agreement came  to be executed.  He only stated that he could not  say whether the talk of reference to the arbitrator in  question cropped  up before or after the dismissal of the  case.   He admits  that be pleaded his inability to prove his  case  in the criminal court and that the arbitrator then entered upon arbitration. It  would  thus be seen that the- evidence  adduced  by  the appellant is cogent, statisfactory and categorical,  whereas

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the  evidence  of respondent No.  1 and  of  the  arbitrator examined  by  him is not categorical to the contary  and  at best is ambiguous.  Even according, to respondent No. 1  and the  arbitrator,  the  agreement  was  drafted  within   the premises of the criminal court just before the criminal case was  taken  out.   In  other  words,  the  place  where  the agreement was drafted and the time at which it was  drafted, are significant.  It was known that the criminal case  would be heard in the afternoon of December 30, 1943, and so,  the sequence  of  events  clearly  indicates  that  the  parties entered into an understanding, the essence of which was that respondent No. 1 was to get the criminal case dismissed  and as  a  consideration for that, the appellant and  the  other accused  persons had to agree to refer their dispute to  the arbitration  of Mr. Murty.  In this connection, it  is  very significant  that  the final draft which  was  executed  and attested  was  handed  over  to  the  arbitrator  after  the criminal  case was withdrawn.  Therefore, the  circumstances attending the execution of the document and the sequence  of events  disclosed  in  the evidence clearly  show  that  the Promise of respondent No. 1 to withdraw and not to prosecute the criminal case was a consideration for which the appelant and  his  friends entered into  the  arbitration  agreement. This is not a case where it can be reasonably said that  the withdrawal of the criminal case may have 700 been  a  motive and not the consideration for  the  impugned transaction. Then   again   cl.5  of  the  agreement   corroborates   the appellant’s case that the withdrawal and non-prosecution  of the   criminal  complaint  was  a  consideration   for   the arbitration  agreement.   That  is why  the  arbitrator  was authorised  to  decide as to who and in what manner  are  to bear  the  expenses incurred in criminal  proceedings.   The intimate  connection of the criminal proceedings  and  their withdrawal  with the arbitration agreement is  thus  clearly established.   That  is another factor  which  supports  the appellant’s case. It  has,  however,  been urged by Mr. M. S.  K.  Sastri  for respondent No. 1 that the agreement was entered into because Mr.  Murty  offered  to ,settle  the  disputes  between  the parties and the parties accepted his advice.  It does appear that  Mr.  Murty had stood surety for the appellant  in  the criminal  case for his due appearance in the criminal  court whenever the case would be fixed for hearing and Mr.  Sastri relies on the statement made by the appellant that Mr. Murty offered  to effect a compromise if a reference was  made  to him and get the case withdrawn.  The argument is that it was at the suggestion of Mr. Murty that the whole incident  took place  and  so,  there  can be no  scope  for  arguing  that respondent No. 1 promised to withdraw the criminal case as a consideration   for   the  execution  of   the   arbitration agreement.   This  argument cannot be accepted  because  Mr. Murty himself doesnot admit that he offered to mediate and parties thereupon accepted his advice. According toMr. Murty he was not present when the agreement was written  and he  in fact does not, know who dictated the contents of  the agreement.   But  apart from this  consideration,  even  the statement  made  by the appellant on which the  argument  is founded shows that the proposal                             701 was  clear-criminal  case had to be ’Withdrawn a not  to  be prosecuted  and the agreement of reference had to  be  made. These  two  steps were related to each other  as  cause  and effect,  or one step was or consideration and the other  was

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the acceptance of the proposal to enter into the arbitration agreement.   Therefore,  we  do  not see  how  it  would  be possible to repel the appellant’s argument that the  consid- eration  for the arbitration ’agreement was the  promise  of respondent No. 1 not to prosecute his criminal complaint. It is true that both the trial Court and the High Court have rejected the appellant’s contention and normally this  Court is reluctant to interfere with a concurrent finding made  on an  issue like this by both the courts below.  But  in  this case,  the,  judgment of the High Court  shows  that  unfor- tunately  the  High Court has not  considered  the  relevant evidence bearing on the point.  Its conclusion rests  mainly on two considerations.  It has criticised the appellant  for not  having taken this point when the appellant applied  for the removal of the arbitrator by his petition M. J. C. 34 of 1944, and so, the High Court took the view that the  present plea  had  been  taken  at a very  belated  stage.   In  our opinion, this criticism is not well-founded.  Whether or not the  appellant  could  have  taken  this  plea  by   another proceeding under some provision of the Arbitration Act is  a different  matter.  But it would be erroneous to find  fault with  the  appellant  for  not  taking  this  point  in   an application  made by him for removing the arbitrator on  the ground  of  his  misconduct.  If the  appellant  sought  the removal  of the arbitrator on the ground of his  misconduct, it would not have been relevant or material in that  context to allege that the arbitration agreement itself was invalid. In any case, the failure of the appellant to take this point otherwise in an ’earlier proceeding would 702 not  justify the rejection of the point without  considering the  merits of the evidence led by the appellant in  support of  it.  and that substantially is what the High  Court  has purported to do in this case, The  other consideration which seems to have influenced  the High  Court  proceeded from the fact that Appa Rao  who  has been  examined by the appellant in the  present  proceedings had  stated  in  the proceedings which  were  taken  by  the appellant  by his application to remove the arbitrator  that after respondent No. 1 had deposed in the criminal case, the reference  to the arbitration was made,, and the High  Court apparently thought that this prior statement of Appa Rao  is so  completely inconsistent with the present version set  up by  the appellant and his witnesses that it should for  that reason alone be rejected.  This view is obviously erroneous. What  Appa Rao stated in the earlier proceedings  is  wholly consistent  with his evidence in the present proceedings  as well  as the evidence given by the appellant and  his  other witnesses.   The reference in law and in fact was made  only when the arbitration agreement duly executed was handed over to the arbitrator and this happened after the criminal  case was  dismissed.  That is the appellant’s version  even  now. This  is  not  inconsistent  with  the  other  part  of  the appellant’s  version  which  deals  with  the   negotiations between  the  parties  which preceded the  drafting  of  the arbitration agreement, the preparation of the draft and  its final  engrossment  all  of  which  took  place  before  the criminal  case  was called out.  All the  witnesses  of  the appellant  have  said  that  the  draft  was  shown  to  the arbitrator,  but the final agreement was given to his  after the criminal case was dismissed.  Thus, what the High  Court thought  to be a serious inconsistency between  the  present story deposed to by Appa Rao and his                             703

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past statement does not amount to any inconsistency at  all. It  is to be regretted that the High Court did  not  examine the  rest  of the evidence carefully before it came  to  the conclusion that the appellant’s challenge to the validity of the   arbitration  agreement  under  s.  23  could  not   be sustained.  It is because of this infirmity in the  judgment of  the High Court that we thought it necessary  to  examine the evidence ourselves.  The said evidence, in our  opinion, clearly  supports  the appellant’s case and so, it  must  be held that the arbitration agreement executed by the  parties on  December 30, 1943, is invalid under s. 23 of the  Indian Contract  Act,  because  its consideration  was  opposed  to public policy. The result is, the two appeals are allowed, the  application made by respondent No. 1 (M.  J. C. 105 of 1946) for passing a  decree  in  terms  of the  award  is  dismissed  and  the application made by the appellant (M.  J. C. No. 8 of  1947) for setting aside the award is allowed.  The appellant would be  entitled to his costs from respondent No. 1  throughout. One set of hearing fees. Appeals allowed. 704