Gherulal Parakh v. Mahadeodas Maiya and Ors.

Gherulal Parakh v. Mahadeodas Maiya and Ors.

1959 AIR 781

(Wagering Agreement-Illegal?-Public Policy?-Immoral?-S.23 and S.30)

FACTS:

Plaintiff and defendant entered into Partnership agreement with object of entering into wagering transactions with obligation to bear equal loss or profit arising out of such partnership. When plaintiff asked for reimbursement of half of money paid by him to discharge losses of partnership, defendant alleged that the agreement made between them was illegal and unenforceable on account of S.23

ISSUE: Whether the alleged Partnership agreement was either forbidden by law, or opposed to public policy or immoral so as to render it void ab initio?

HELD:

(i) Void agreements cannot be equated with illegal agreements. The law may actually forbid an agreement to be made or it may merely refuse to enforce an agreement. In former case, it is illegal in latter it is merely void, in as much as all illegal agreements are void but not all void agreements are illegal or forbidden by law.

S.30 of ICA is based on provisions of Gaming Act, 1845 in England which rendered both primary agreements of wagering and any substituted agreement for recovery of money alleged to be won on any wager as void but, secondary agreements in respect thereof enforceable. Therefore any wagering agreement though is void and unenforceable but is not forbidden by law, therefore the object of any collateral agreement upon wagering isn’t unlawful within the ambit of S.23 of ICA, hence is valid and subsisting between the parties.

In present case, parties had no interest to take delivery of the goods rather were only dealing with difference in prices such that they mutually intended the transaction to be of the nature of wager. Though wagers are void u/s 30 of ICA but cannot be considered as forbidden by law u/s 23 for a person entering into wagering transactions does no legal wrong but only fails to get protection of law in enforcing those transactions. Hence any collateral agreement with the object of wagering cannot be declared to be void due to ‘object forbidden by law’ u/s 23, and is subsisting between the parties.

(ii) Any agreement which tends to be injurious to/against interest or conscience of public at large is said to be opposed to public policy. It is a branch of common law and unless a particular principle of public policy is recognized by that law, Courts cannot invent a new head of public policy. The ordinary function of Court is to rely on the well settled heads of public policy and to apply them to varying situations unless harm to public interest is substantially incontestable.

The policy of law in India is to sustain the legality of wagers, as in common law, though rendering them void and unenforceable. Not even in a single case, SC said, had Courts in India pr in England struck down any wagering contract as ‘opposed to public policy’. Indeed some of the gambling transactions are a perennial source of income to the state. Hence, it cannot be said that wagering is opposed to public policy and therefore, partnership agreement formed with object of wagering was not unlawful for its object being opposed to public policy u/s 23.

SC further remarked, “Even if it is permissible for Courts to evolve a new head of public policy under extraordinary circumstances giving rise to incontestable harm to society, wager isn’t one of such instance of exceptional gravity for it has been tolerated by public and state alike.”

(iii) Immorality u/s 23 should be confined to cases of sexual immorality like agreements for concubinage, sale or hire of things to be used in a brothel, marriage for consideration; agreements facilitating divorce, etc. are all immoral in nature. This limitation on meaning of word ‘immoral’ as in S.23 is because of reasons: Firstly, its juxtaposition with equally wide concept of ‘public policy’ in S.23 highlights legislative intent to give it a narrow meaning otherwise it will lead to overlapping of two concepts; secondly, the phrase “Courts regard it as immoral” as in S.23 highlights immorality is also a branch of common law and must be confined to principles recognized and settled by Courts; Thirdly, case law in England and in India confines its operation to sexual immorality.

Since present case revolves around wagering which cannot be regarded as sexually immoral, hence, it is not under realm of immorality as given u/s 23 of ICA.

Therefore partnership agreement formed with the object of entering into wagering transactions is enforceable, valid and subsisting for its object of wagering isn’t unlawful u/s 23 because it is neither forbidden by law, nor opposed to public policy, and nor immoral.

 

Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata)