The plaintiff appeals against the decrees of the lower Courts dismissing his suit against the defendants 2 and 3. The suit was filed to recover Rs. 2086-14-6 being the amount due under a promissory note (Ex. A) executed by defendants 1 to 3 in favour of the plaintiff. The defence which found acceptance in the lower Courts is that the consideration so far as defendants 2 and 3 are concerned was the stifling of a criminal prosecution against the first defendant and therefore illegal under S. 23 of the Indian Contract Act. Both the Courts found against the plaintiff.

The 1st defendant pledged certain packages of goods representing that they contained bottles of condensed milk and “jeevamrutham” bottles and borrowed money from the plaintiff. The money was not paid and the pledgee took steps to have the goods sold. When the packages were opened for the purpose of sale, it was found that they contained stones, husk, saw dust, waste paper etc. This was clearly a case of cheating. The discovery was made on the 19th September 1935. That evening the 3rd defendant who is a pleader practising at Masulipatam came to Bezwada and that night there were talks between the plaintiff and the defendants. The 2nd defendant is the brother of the 1st and the 3rd defendant is his son-in-law. All three took part in the discussion. There was a mediation. P.W 3 and D.W 4 are admittedly two of the mediators who took part in the mediation. The result was that at about 6 O'clock next morning i.e, the 20th, Ex. A, the suit promissory note, came into existence which was executed by all the three defendants for Rs. 2,050. The promissory note recites that a sum of Rs. 2,800 was settled by the mediators to be paid in full settlement of all the claims of the plaintiff and that a sum of Rs. 750 was paid that day. For the balance of Rs. 2,050, the three defendants executed the promissory note. It appears that a larger sum than Rs. 2,800 was in fact due. The mediators settled that the plaintiff should give up a portion and be content with Rs. 2,800. It also appears that the defendants wanted time to pay; thus acceptance of a smaller sum than what was due and giving time for the payment of the sum settled were, at any rate, part of the consideration for defendants 2 and 3 joining in the execution of the promissory note. But the question is: was it also a part of the bargain that the consideration for defendants 2 and 3 joining in the promissory note was that the plaintiff should refrain from prosecuting the 1st defendant and if so, whether it vitiates the promissory note altogether as one opposed to public policy. One of the plaintiffs went into the box and swore:

“We believed 1st defendant committed an offence and cheated us………We contemplated criminal action against the 1st defendant but did not take any steps in that direction………It was known in the town that the 1st defendant played mischief. There was talk in the night that defendant No. 1 should be saved from prosecution by settling the matter that night. We did not take any action thereafter as the matter was settled. We said we would give up taking action if defendants 2 and 3 joined in the execution of the promissory note. They had nothing to do with the business of the 1st defendant. We would have taken action if defendants 2 and 3 had not joined in the execution of the promissory note. We sought the advice of Mr. C. Venkatappayya at that time……We never saw defendant No. 3 before.”

The evidence of P.W 3 makes it further clear that defendants 2 and 3 were asked to join the execution of the promissory note partly, at any rate, for the purpose of saving the first defendant from criminal prosecution. They were not under any pre-existing liability. On the evidence therefore the consideration for defendants 2 and 3 joining in Ex. A is partly, at any rate, abstention on the part of the plaintiff from prosecuting the 1st defendant.

The question is whether in such a case the consideration or object of, the agreement is unlawful within the meaning of S. 23 of the Indian Contract Act. The section runs thus:

“The consideration or object of an agreement is lawful, unless—

it is forbidden by law; or

is of such a nature that, if permitted, it would defeat the provisions of any law; or

is fraudulent; or

involves or implies injury to the person or property of another;

or

the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”

Stifling prosecution is a recognised head of public policy. The law is clearly laid down by the Judicial Committee in Kamini Kumar Basu v. Birendranath Basu(1). There a prosecution for forgery was launched and during the pendency of the criminal proceedings, an agreement was entered into, the validity of which came up for consideration. The complaint in that case was in respect of offences under Ss. 465, 567, 193 and 194 of the Indian Penal Code which are all non-compoundable. The matters were referred to arbitration and the arbitrators delivered an award. Subsequent to the award, the parties entered into an Ekrarnama or agreement embodying the result of the decision of the arbitrators. The criminal proceedings were subsequently dropped. The Subordinate Judge held that the object of the arbitration proceedings and of the agreement was the securing of the withdrawal of the criminal proceedings and that the consideration was unlawful and void. The High Court differed from the Subordinate Judge and held that the reference to arbitration was a bona fide one for the settlement of the disputes as to title. The High Court further held that as the Magistrate dismissed the complaint under S. 203 of the Criminal Procedure Code, it could not be said that the prosecution was dropped, implying thereby that the stage at which the prosecution could be said to have commenced had not been reached within the meaning of the Criminal Procedure Code. The High Court also held that there was no tampering with the administration of justice by the complainant and gave a decree on the basis of the agreement. On appeal to the Judicial Committee it was held that it was immaterial whether the stage of prosecution had been reached within the meaning of the Criminal Procedure Code or not.

“If it was an implied term of the reference or the ekrarnama that the complaint would not be proceeded with, then in their Lordships' opinion the consideration of the reference or the ekrarnama, as the case may be, is unlawful [see Jones v. Merionethshire Permanent Benefit Building Society], and the award or ekrarnama was invalid, quite irrespective of the fact whether any prosecution in law had been started.…In a case of this description 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 is enough for the defendants to give evidence from which the inference necessarily arises that part of the consideration is unlawful…………Their Lordships have no hesitation in holding that, prior to the execution of the ekrarnama, it was an implied though not an expressed term, that in consideration of the executant admitting the shares of the plaintiffs they would not proceed with the charges laid by them against the accused.”

It is clear from this decision that even if part of the consideration was the undertaking not to proceed with the prosecution, the entire agreement would be illegal.

It is urged by Mr. Rajah Ayyar, the learned Advocate for the appellant, that the offence complained of in the case before the Judicial Committee was a non-compoundable one, and that in this case the offence is not of that nature but is compoundable, though if a prosecution has been started, it cannot be compounded without the leave of the Court. He points out that it is well established that the compounding of a purely private complaint in which the public is not interested at all, e.g, the case of assault is perfectly valid and that an agreement to pay a sum of money in consideration of the prosecution not being started or the dropping of the prosecution already started would not vitiate the contract. Public policy requires that in cases where public interests are involved, the parties should not compound the offence. In Windhill Local Board of Health v. Vint(2) Cotton, L.J says:

“I do not intend to enter at all into the question whether an agreement to stifle any prosecution is illegal or not. That does not arise here, because this was merely a prosecution on a public matter—a matter which concerned the public. It was an interference with the public highway in a very serious manner.”

Fry, L.J observed:

“Now, I confess it appears to me that the law upon this point is determined by the case of Keir v. Leeman(3). That lays down this principle, which I take to be one of general application, that where the matters of indictment are matters of public concern, they are not the subject of compromise. To use the language of the learned Judge who delivered the judgment in the Court of Queen's Bench 6 Q.B 322 ‘these are matters of public concern, and therefore not legally the subject of a compromise’.”

Lopes, L.J observed:

“As a general principle, it may be stated that it is the duty of every prosecutor where the public are interested to prosecute either to conviction or to acquittal……“If the offence is of a public nature, no agreement can be valid that is founded on the consideration of stifling a prosecution for it.” Now, there can be no doubt that in the present case the offence was of a public nature.”

In a case where a trade mark was alleged to be infringed, the Court of Appeal held in Fisher & Co. v. Apollinaris Co. that it is not illegal to compound it. James, L.J observed:

“This is one of those misdemeanours where the person injured has the choice between a civil and a criminal remedy. It was no more a violation of the law to accept an apology in such a case than it would be to compromise an indictment for a nuisance or for not repairing a highway on the terms of the defendants agreeing to remove the nuisance or repair the highway. Offences of this kind are indictable, but it is not against the policy of our law to allow the injured person to enter into a compromise with regard to them.”

The decisions of the English Courts do not further elucidate the matter. In each case the Court will have to decide on which side of the line the case falls.

In India, the Criminal Procedure Code lays down what offences can be compounded; some are compoundable without the permission of the Court; some others are compoundable only with the leave of the Court before which a prosecution for the offence is pending. Others are not compoundable at all. In the first class of cases, there is no difficulty in saying that an agreement to compound such an offence is lawful, there being no law or public policy violated in such a case. In the case of a non-compoundable offence, as pointed out by the Judicial Committee in Kamini Kumar Basu v. Birendranath Basu, the agreement is unlawful. The difficulty arises in cases where the offences are compoundable with the leave of the Court. Cl. (2) of S. 345 obviously refers to a stage where a prosecution is already launched and provides that the offences specified therein are compoundable only with the leave of the Court before which the prosecution is pending. What is the principle to be applied to a case where the offence is one falling under S. 345(2) but the matter has not yet reached the Court? That is the case which arises for decision here.

In Veerayya v. Sobhanadri a charge was laid for an offence under S. 420 of the Indian Penal Code. After the prosecution was launched an agreement was entered into, part of the consideration being the dropping of the criminal proceedings and leave of the Court was not obtained for compounding the offence. Venkataramana Rao, J. after discussing the question whether the object of the transaction was or was not the dropping of the prosecution says this on page 478:

“There can be no doubt that in this case the offence must be deemed to be non-compoundable as the permission of the Court to compound was not obtained.”

It will be noticed that the prosecution had already been launched and the case was exactly covered by S. 345(2) and so the offence could not be compounded except with the leave of the Court. In the present case, the matter did not reach the Court and therefore S. 345(2) does not in terms apply. In Raja Ram v. Charanji Lal a Bench of the Lahore High Court held that where the offence is compoundable with the leave of the Court, a compromise during the pendency of a case is perfectly lawful. This of course is in direct conflict with the decision of Venkataramana Rao, J. in the case just cited.

The question therefore reduces itself to this: where the matter has not reached the Criminal Court, is there any rule of public policy preventing the parties from compounding offences specified in S. 345(2) of the Code of Criminal Procedure. The fact that after the matter has reached the Court, leave of the Court is necessary does not, in my opinion, solve the difficulty. Is the offence of cheating of such a nature that an agreement to compound it before the matter reaches the Court is illegal and void? Suppose the parties desire to compound an offence of cheating involving a few rupees. Is it necessary for them to file a complaint, place the agreement before the Court and then alone compound it? That means that a complainant who is no longer desirous of prosecuting must file a complaint; else the agreement which he enters into by which he secures reparation for the pecuniary loss sustained by him will be invalid. Both the parties agree that there should be no prosecution; yet the complainant must launch the prosecution and then seek the permission of the Court, thus breaking the agreement. The whole thing is reduced to a farce.

In a case where a man is cheated of a few rupees, how are the public interests so much involved as to prevent the parties from adjusting the matter. Extreme cases on both sides of the line may be put. But after giving the matter my best consideration, I hold that in the case of offences specified in S. 345(2) of the Code of Criminal Procedure, the matter may be lawfully compounded before it goes to Court.

After a prosecution is launched, S. 345(2) expressly provides that these offences are compoundable only with the leave of the Court. In such a case, an agreement to compound it without the leave of the Court would if permitted defeat the provisions of S. 345(2) Criminal Procedure Code and hence void under the second paragraph of S. 23 of the Indian Contract Act.

I therefore reverse the decision of both the lower Courts and decree the suit as prayed for with costs throughout.

Leave to appeal is granted.

N.R.R