Ramkrishnadas Jawaharlal v. Mutsaddilal Murlidhar

Braund and Yorke, JJ.:— This is a case which would have been a good deal easier to try had the pleadings of the parties been better framed. In this respect we find little to choose between the pleadings of the plaintiffs and the defendants.

The plaintiffs are a firm, called Mutsaddilal Murlidhar, which we shall hereinafter refer to as the “plaintiff firm.” They are what is known as “pucca arhatias” carrying on business in the wheat market at Hapur in these provinces. It is worth while observing that the partners of the plaintiff firm carry on business at other places also under different firm names, one of which subsidiary firms is the firm of “Bhawani Sahai Salig Ram” and a third such firm is styled “Murli Dhar Salig Ram.” The former of these two branch firms carries on business also at Hapur and the latter at Ghaziabad.

The defendants are a firm called Ram Kishun Das Jawahar Lal, and for convenience we shall refer to them hereinafter as the “defendant firm”. Subject to the question, which we shall discuss later, as to whether a certain Mr. Ram Kishun Das Khanna (hereinafter called “Khanna”), whose actions are in controversy in this suit, was a partner in it, the defendant firm consisted of a certain Lala Ram Kishun Das Tandon (hereinafter referred to as “Tandon”) and Lala Jawahar Lal.

We think that the convenient course will be first to set out the facts by reference to pleadings. The plaint begins by alleging that between the 3rd of May, 1933, and some date in January, 1934, the defendant firm entered into a considerable number of what are called “forward” contracts with the plaintiff firm for the sale and purchase of wheat. By paragraph 6 it is alleged that these transactions resulted in a loss to the defendant firm for the month of Jeth, Sambat 1990, of Rs. 514 odd, for the month of Margsar, Sambat 1990, in a loss of Rs. 6,030 odd and for the month of Magh, Sambat 1990, in a loss of Rs. 5,239, while for the month of Bhadon, Sambat 1990, there was a profit to the defendant firm of Rs. 1,122-15-6.

Up to that point the plaint is quite clear and one would have expected it to be followed by a claim against the defendant firm for these losses, after giving credit for the profit, amounting to ten thousand rupees odd. Paragraph 7 of the plaint takes the matter rather further because it alleges that, in addition to the account in the name of the defendant firm on which the above mentioned transactions took place, there were 1 also opened two other accounts which in reality belonged to the defendant firm but were actually kept in different names, namely in the names of “Shib Charan Das” and “Ram Chandra” respectively. On these two accounts, which were also accounts in, respect of forward contracts for the sale and purchase of wheat, there was a loss to the defendant firm of Rs. 1,727 odd of which Rs. 226 remained unpaid. The plaint is clear enough up to that point.

We can pass over for the present paragraphs 8 to 13 of the plaint and come at once to paragraph 14, which is in these terms: “The defendants on different dates paid to the plaintiff firm Rs. 14,686-8-0 in cash under hundis etc., and a sum of Rs. 1,122-5-6 was credited on account of profit and a sum of Rs. 21,142-4-6, on account of loss, price of grain, expenses and interest, etc., was debited to the defendant in the account book. Now a sum of Rs. 5,332-13-0 is payable by the defendants, which they in spite of duns and demands have not paid.”

Finally the plaintiff firm claims by way of relief payment of this last mentioned sum of Rs. 5,332-13-0.

We may say at once that we have found it extremely difficult on these pleadings to understand how this sum of Rs. 5,332-13-0 is arrived at. We could have understood a claim for ten thousand rupees odd on the balance of the outstanding “forward” accounts. But it is not easy to reconcile this with the sum claimed. The truth of the matter appears to be that, after pleading the “forward” transactions in the earlier paragraphs of the plaint, the plaintiff firm suddenly jumps by paragraph 14 to a general account between it and the defendant firm of which the forward transactions form only part. The balance of Rs. 5,332-13-0 which the plaintiff firm claims is in reality the balance of the general account and has no relation to the “forward” transactions alone. The result is that, while the pleadings are in form directed to a cause of action relating to the “forward” transactions only, the relief is directed to the recovery of a balance on a larger general account of which the “forward” transactions only form part. We point this out, because, notwithstanding the pleadings, it appears to us that the suit has been tried as if it were a suit relating to the “forward” transactions only and this appeal has certainly been argued before us upon that footing. We think that the proper way for the plaintiff firm to have framed its plaint, if it had desired to recover the balance due on a general account, was to ask for a declaration that it was entitled to the credits referred to in paragraphs 6 and 7, after allowing for the sum of Rs. 1,122-15-6 mentioned in paragraph 6, and to have gone on to ask for an account to be taken in respect of the general account on that footing and for payment of what might be found due.

The material paragraph of the written statement is paragraph 20. The written statement seems to treat the suit as if it were a suit relating to the “forward” contracts alone and paragraph 20 of the additional pleas denies these contracts in every possible form. It is not content with formally denying them and putting the plaintiff firm to proof of them, but it goes out of its way, in addition to denying that there were any “forward” contracts, to deny that, if there were any, they were entered into on any authority given by the defendant firm and, moreover, that anybody on behalf of the defendant had any authority to enter into any “forward” transactions on the defendant firm's behalf. That was plainly pleading by anticipation on a want of authority on the part of the person, whoever it was, who had purported on the defendant firm's behalf to enter into any such contract with the plaintiff firm. It is, we think, unfortunate that the defendant firm did not ask for particulars of the contracts pleaded in paragraphs 3 and 4 of the plaint and of how they were made and it is still more unfortunate that the plaintiff delivered no reply. In fact, nine-tenths of the conflict in this case has raged round the question whether Khanna, who, as we have said before, was associated with the defendant firm, had any authority, either as a partner or as an agent, to enter into the “forward” contracts in question. Though we concede that the pleadings are not happy and while we could have wished that the learned Judge who tried the case had insisted on their being improved before he embarked on it, we are not prepared at this stage to dismiss the suit, as we have been invited by the appellants to do, on the ground only of the defects in the pleadings. We have come to this conclusion because it is quite evident that throughout the course of trial, which took place over seven years ago, there was no misunderstanding in the minds of the parties as to what the issues really were and, moreover, there were certain proceedings by way of “oral pleadings” which did, in fact, serve to clarify the issues before the trial started. It is not, we think, possible to say that either party was at any substantial disadvantage by reason of the imperfections of the pleadings.

The “forward” contracts in controversy are those contained in schedule (A) of the plaint. It appears that the defendant firm was a firm carrying on business as dealers in grain at Moradabad. There has never been any question, as we have already said, but that Tandon and Lala Jawahar Lal were partners in the firm. They resided, so it appears, at Moradabad, and they have a nephew whose name was Shib Charan who appears to have occupied himself in the firm's business as well, Hapur which is a grain market, lies a little less than a hundred miles from Moradabad and there the two “branches”—we use that expression as a matter of convenience—of the plaintiff firm, namely the plaintiff firm itself and the firm of Bhawani Sahai Salig Ram, carried on business as pucca arhatias. It should be said that Hapur possessed a Chamber of Commerce under the rules of which grain dealings were carried on. There is no doubt that the contracts referred to in schedule (A) of the plaint were, in fact, entered into. Many of the contract notes have been exhibited and Exhibit 7(2) is an example of one. These contracts seem to have all been detached from a book maintained by the plaintiff firm and were all headed “Book of forward transactions”. They begin with a contract note giving the names of the parties, the commodity dealt in, the bulk, the “forward” date and the rate. They then contain certain conditions, among which is a condition incorporating the Rules of Hapur Chamber of Commerce. We shall have to refer to these conditions at a later stage. We agree with the learned. Judge in thinking that these transactions did take place, and, indeed, it has not been seriously contended before us that they did not. We are also satisfied that they were all “forward” transactions in the sense that they were, or purported to be; purchases of wheat at fixed prices by the defendant firm from the plaintiff firm at future dates and (with one possible exception) they were balanced by corresponding sales at or before the due dates by the defendant firm to the plaintiff firm. As to one transaction, or series of transactions, dated Margsar Sudi 8, it appears that 625 tons were bought in by the plaintiff firm against the defendant firm on account of the failure by the latter to provide “cover” during the period the contract was open, and in one other case—that of Margsar Badi 14—there appears possibly to have been an actual delivery of 50 tons of wheat. The gross amount in tons of the aggregate of these “forward” transactions came, over a period from May to November, to close on 3,000 tons, which represented many lakhs of rupees.

[The judgment then proceeded to discuss the evidence on the question whether Khanna had entered into the forward contracts as a duly authorised agent of the defendant firm, and arrived at a finding in the affirmative.]

That brings us to the other part of the case, upon which we shall, in fact, dispose of it. The other issue throughout has been whether these contracts were wagering contracts. We have already dealt, at some length with their history and have pointed out that they have been continuous and regular over several months. We shall have now to look at the terms of the contract itself.

These contracts were more or less uniform and they all contained practically identical conditions. The form used was, in fact, a printed form. Paragraph 1 of the terms incorporates the conditions of the Hapur Chamber of Commerce. Paragraphs 2, 3 and 4 are the material ones, and we set them out:

“2. The pucca arhati shall be competent to give delivery of the goods relating to the transaction entered into by the party, no matter from what source he gets those goods; but the person entering into the transaction shall not have authority to demand delivery (of the goods) from the, arhati. He can demand delivery only through the arhati up to 12 o'clock from the 1st to the 12th of the second fortnight of the month to which the transaction relates, after depositing the earnest money. The arhati can also pass on to the person entering into the transaction his (arhati's) own forward transaction and he can also give delivery of the goods. The person entering into the transaction shall not have any objection to that.

“3. If the delivery of the goods is not effected by the stipulated date, the rate fixed by the Hapur Chamber of Commerce as the rate prevailing on that date shall be accepted by (shall be binding on) the party entering into the transaction.

“4. The pucca arhati shall be liable to pay the amount of profit and entitled to realise the amount of loss; he shall not be bound to disclose the names of the particular parties to whom he paid the amount of loss.”

As it seems to us, clause 2 gives the pucca arhati an option to give actual delivery if he wishes, whether from stock or from some other source. But it deprives the other party of the right to claim actual delivery from the pucca arhati at any time. It seems, however, that the arhati can also satisfy his obligation by passing on a forward transaction of his own. The effect of the three clauses taken together put in its simplest form, seems to be that the pucca arhati was to be in a position to choose whether he delivered or not and was, if he so liked, to be able to settle the matter by paying or receiving, as the case might be, a mere difference.

It is, we concede, not impossible, nor even intrinsically unlikely, that such a form of contract might be used for a genuine “ready” transaction. But it is also impossible to deny that this form of contract is equally capable of use as the vehicle of a mere gambling transaction. It seems to us, therefore, that, standing by itself, the contract does not help us very much one way or the other, except that, as we see it, it is a document under the terms of which mere gambling could conveniently be carried on. The real question to our minds in this case is to ascertain what, as between these parties, was the real intention when they entered into the contracts in question, in the sense of asking ourselves whether it was ever within their contemplation that grain should be delivered or whether their real intention was only to pay a difference on or after the due date.

Before dealing with this question, we should like to consider one or two authorities. In Universal Stock Exchange v. David Strachan(1) the House of Lords in England considered the law relating to such transactions as these in relation to stocks and shares on the stock exchange. The value of this case is that it shows that, in England at least, the mere circumstance that an opportunity is left open to the parties to complete their contract by actual delivery will not be allowed to deprive the court of the power to consider whether that was their real intention. This is made clear from the speech of Lord Herschell who says:

“The proposition amounts to this, that parties who intended to gamble with one another, but wanted to have the security against one another of being able in a court of justice to recover their bets, could compel a court of justice to adjudicate and secure to them their bets by a judgment, if only they inserted in their contract a provision which might in certain events become operative to compel the goods to be delivered and received, although neither of them anticipated such a contingency; the purpose of inserting the provision creating an obligation being only to cloak the fact that it was a gambling transaction, and enable them to sue one another for gambling debts. The proposition contended for by the learned counsel for the appellants would really lead to that result, and I should require much consideration before I gave my assent to a proposition involving such consequences.”

We think that we must bear that in mind in applying section 30 of the Indian Contract Act. And again in the case of In re Gieve it is made equally clear by the English Court of Appeal that a contract may nonetheless be a contract by way of gaming or wagering because it gives the buyer or seller an option to demand delivery or acceptance, as the case may be, of the subject-matter of the contract. In short, the parties will not be allowed to “camouflage”—if we may make use of that expression—their transaction by getting it up as a “delivery” transaction when, in fact, it was never their intention that it should be.

The latest authoritative case is one in the Privy Council of Sukdevdoss Ramprasad, Firm v. Govindoss Chaturbhujadoss and Company(2). In that case Lord Darling on behalf of the Board, after considering the two cases to which we have already referred, states the law in a form which is, of course, binding on us in these words:

“The authorities cited show that to produce that result”—i.e, the result of avoiding the contract—“there must be proof that the contracts were entered into upon the terms that performance of the contracts should not be demanded, but that differences only should become payable.”

On the facts of that case before the Judicial Committee it was held that the transactions in question were not merely gambling transactions and were not therefore void. The facts, however, there were different from the facts before us. There were, we think, only three transactions in question and, even so, there was some actual genuine delivery business as part and parcel of the same contracts. The facts were wholly different from ours and there were, indeed, no conditions of the contract to throw any light on the matter. It was a simple case, as we read it, of a sale followed by a purchase instead of completion.

There is only one other case to which we desire to refer and that is a case in this Court itself decided by Mr. Justice Rachhpal Singh in Harcharan Das Somparkash v. Jai Jai Ram. It is an interesting case from our point of view because it arises out of precisely the same form of contract as the one with which we are dealing. It also concerns a contract made, at Moradabad. The learned Judge attaches great significance to clause 4 of the contract, as, indeed, with great respect, do we. We have already set out clause 4 above. We attach no less significance than did the learned Judge in that case to the circumstance that the pucca arhatia was in no circumstances to be bound to disclose the name of any other person to whom he might have incurred a loss in respect of the transaction in question, nor, indeed, whether he had incurred a loss at all. That is an ideal provision, if the transaction is to be a mere gamble. The learned Judge says:

“The terms of the contract in the case before me clearly show that the plaintiff and the defendant were entering into a contract as principals. The terms of the contract show that there was a mutual understanding that there was to be no delivery and that only differences would be paid by one party to the other. Paragraph 2 clearly provides that the defendant will have no right to call for delivery. Paragraph 4 of the contract provides that the defendant will have no right whatsoever even to inquire from the plaintiff his pucca arhatia as to whom he had to pay any losses in respect of the transaction in question…. After a consideration of all the circumstances of the case… I hold that there was no intention to give delivery and the parties mutually agreed to pay the differences only.”

It comes, we think, therefore to a question of fact—what is their real intention? That brings us back to the circumstances of the present case. There was a long series of very substantial contracts over a period of seven months, in not one of which was there any genuine delivery of goods, except, conceivably; in one small case. These contracts were all based upon terms which were, as we have shown, singularly appropriate to mere gambling transactions. Indeed, the contracts were themselves headed as “forward” contracts. We think that we are entitled, if not bound, to regard the course of dealings between the parties as a reliable indication of what their real intentions were and that we should not be deflected from a commonsense view of the matter either by the fact that one of the parties might have given delivery, had he so elected, or by the fact that in one small case delivery either was or may have been, given. We bear in mind that the books of the defendant firm have not been produced, because, we think, it suited neither side to produce them. It did not suit the plaintiff to call for their production, because, if he had, they might well have shown that these were merely gaming transactions. It did not suit the defendant to produce them because, if he had, they might have shown conclusively that Khanna was their agent.

The transaction of Margsar Badi 14 on which there is said to have been a delivery of 50 tons would not alter our view, even if we were satisfied that there was really such a delivery. At the best we point out that this was a contract which seems to have been entered into with the plaintiff's branch firm of Bhawani Sahai Salig Ram and not with the plaintiff firm in the first place.

For all these reasons, we have come to the conclusion that the contracts between the plaintiff firm and the defendant firm which are sued upon were wagering contracts and cannot be enforced in view of the provisions of section 30 of the Indian Contract Act. In that respect we disagree with the learned Judge, who does not seem to have had the advantage of considering the authorities.

We must, therefore, allow this appeal, set aside the decree of the court below and substitute for it a decree dismissing the suit with costs. We think that, notwithstanding that the appellants have failed in one of their contentions in this Court, they are nevertheless entitled to their costs of this appeal.

We should perhaps add that, had we been able to agree with both the findings of the learned Judge, we should have had still to consider carefully what form of relief the plaintiff would have been entitled to.