1. This is an appeal by Kishanlal and Satya Narain, minors under the guardianship of their mother, against the judgment of a Division Bench of the High Court of the former Jodhpur State, dated the 24th of September, 1949. The applicants were plaintiffs in suit No. 49 of 1945-46, which was decided on the original side of the High Court of the former Jodhpur State. After the decision of the Division Bench, there was an application to the High Court for leave to appeal which was granted. That is how the present appeal has come up before us.
2. The plaintiffs' suit was for recovery of Rs. 10,342/3/3. The plaintiff owned two firms, one in Jodhpur, called Kan Mal Suraj Mal and the other in Indore, called Kan Mal Kishan Lal, and both these firms were acting as commission agents. The plaintiff's' case was that the defendant, Bhanwar Lal, who is a resident of Jodhpur, entered into certain forward transactions in bullion with their Indore Firm. These transactions resulted in a loss, a part of which was paid up. The suit was filed for recovery of the remainder of the loss consisting of Rs. 9,861/13/6 as principal and Rs. 480/5/9 as interest.
3. The suit was resisted by the defendant on a number of grounds, and seven issues were framed by the trial Judge. There was a total denial by the defendant of any contract having been entered into between him and the plaintiffs' firm at Indore. It was also alleged that the transactions were of a wagering nature, and further that in view of a Notification, dated the 3rd of June, 1943, the transactions were illegal, and no decree could be passed by the Courts in Jodhpur State in consequence.
4. The plea as to the illegality of the contracts was considered by the Court as a pure question of law and the Court after hearing arguments on the question upheld the plea of the defendant that the contracts were illegal by virtue of the provisions of the Notification of 3rd June, and dismissed the suit.
5. The Notification of 3rd June, 1943, was issued by the Jodhpur Government under the Defence of India Act and Rules as in force in the former State of Jodhpur. It related to forward transactions in bullion where the date of delivery was more than 12 days after the contract, and provided a punishment for breach of its provisions. The Notification remained in force till the 30th of September, 1946, when it came to an end by efflux of time. The present suit was filed on the 19th of August, 1946, and was decided by the trial Court on the 2nd of March, 1948.
6. The trial Judge held that the consideration of these contracts was not lawful as it was of such a nature that, if permitted, it would defeat the provisions of the Notification of the Jodhpur Government dated 3rd of June, 1943, and, therefore, in view of Section 23 of the Contract Act and Section 13 of the Code of Civil Procedure the suit was liable to be dismissed as it involved a violation of the Notification of the 3rd of June, 1943, and it would not be proper for the Courts of Jodhpur State to allow a claim which definitely and clearly contravened the rule embodied in that Notification, as the rule in question was a part of the substantive law and not a mere matter of procedure. He did not go into the question whether any part of the contract was entered into or performed within Jodhpur State.
7. When the matter came in appeal before the Division Bench, three points, which were formulated as below were agitated:
'1. That since the contracts were neither made nor intended to be performed in part or in Whole in Marwar and were, on the contrary, made and performed in Indore where they were not forbidden by Jaw, the notification dated 3rd of June, 1943 was not applicable to them and therefore was not a bar to the competency of the suit in the Court of Marwar.
2. That since the contracts were neither made nor intended to be performed in Marwar, their enforceability here should not be affected by the mere fact that they were inconsistent with the law prevailing for the time being in Marwar, for the notification in question was only of a temporary character and the various contracts were not in conflict with the fundamental law of India on which the permanent law of Marwar was grounded.
3. That lastly if it be held that the contracts came within the mischief of the notification, before the suit was dismissed the notification had already spent its force, and, therefore, could not affect the maintainability of the suit.
8. The Division Bench did not decide the second of these points as in the view that they were taking on the first point the question did not arise. On the first point the Division Bench held that part of the contracts was performed in Marwar according to the settlement between the parties, and the Notification of the 3rd of June, 1943, was fully applicable. On the third point the Division Bench held that as part of the contracts had been performed in Marwar the Notification of the 3rd of June, 1943, was applicable to them, and what was illegal when the contracts were entered into or performed could not become legal after the 30th of September, 1946. In this view the appeal was dismissed.
9. The main contention that has been urged on behalf of the appellants is that the Division Bench went wrong in holding that part of the contracts was performed in Marwar as settled between the parties. This, it is said, was an issue of fact on which evidence was required, and as no evidence was taken in the trial Court, the Division Bench should not have decided this issue of fact without evidence. It is further urged that there was no admission on the part of the appellants that part of the contracts was to be performed in Marwar. As a matter of fact it is urged that a persual of the plaint shows that the plaintiffs' case was that the contracts were entered into and were to be performed in Indore. In particular, reference was made to paragraph 8 of the plaint where it was said that the Marwar Courts had jurisdiction not because the cause of action arose in Marwar, but because the parties resided in Marwar. It is also urged that the second point, which was left undecided by the Division Bench, raises an important question of law, and should have been decided by the Division Bench but for the erroneous view that was taken on the first point formulated by the Bench.
10. It does appear to us that the first point formulated by the Division Bench raised a question of fact, namely whether the contracts were entered into in Marwar or any part of the contracts was intended to be performed in Marwar. Further, there seems to be no doubt that the parties were not at one that any contracts were entered into in Marwar or any part was intended to be performed in Marwar. Paragraph 8 of the plaint shows that the plaintiffs' case was that the Marwar Courts had jurisdiction because the defendant resided within Marwar, and not because the cause of action, wholly or in part, arose in Marwar. The defendant, on the other hand, completely denied that any contract had been entered into at all with the Indore firm. There is no doubt, therefore, that the first point, formulated by the Division Bench, raised an issue of fact, on which the par-ties were not agreed, and to decide which it was necessary to lake evidence and, of course, consider the circumstances of the case.
11. It was urged on behalf of the defendant-respondent that the appellants, if they wanted evidence to be taken on the point, should have taken this stand before the Division Bench, but as they did not do so, they could not be allowed an opportunity for further evidence at this stage . The respondent's contention is not correct. The trial Court had framed seven issues in the case of which the fifth issue which is relevant was as follows:
'Issue No. 5. Whether the transactions were illegal under the Notification of 3-6-1943 referred to in para 11 of the written statement and as such the suit in respect of such transactions was not entertainable?'
Now para (11) of the written statement did not at all mention the plea that the contracts were made in Marwar or were to be performed in whole or in part in Marwar. The plea in that para was that
'according to law in Marwar mentioned in Notification dated 3-6-43, all forward business m Bullion where delivery was to be given beyond 12 days was illegal in St. 2002 and as such the suit should be dismissed.'
The trial Court had considered issue No. 5 as one of law only and had decided that the suit was not maintainable on the view that although the en-tire contract was to be performed at Indore, yet the contract was illegal according to the law in Marwar. The plaintiff was challenging Use decision of the trial Court on the facts accepted by it that the entire contract was to be performed at Indore. The attack was on two grounds, viz., 1, that the enforceability of the contract which was made or performed outside Marwar was not affected by the law of Marwar, and (2) that the Marwar Notification had expired before the decision of the suit, and had, therefore, lost its force. It was the respondent who raised this question of fact for the first time in appeal that the contract with the Indore firm was to be performed in part in Marwar. It may be mentioned that according to the written statement, the defendant had denied any contract with the Indore firm, and he could, therefore, only argue on the pleadings in the plaint and it was not open to him to travel beyond the plaint and rely on stray facts, without the plain-tiff being given an opportunity to explain those facts the plaintiff could not know whether the Court would accept his arguments on questions of law and his grievance only came into existence when the judgment was pronounced and he found that the Court had given a finding of fact, without his being given an opportunity to explain the circumstances which had influenced the Court to find against him. The Devision Bench of the High Court of the Covenanting Staten of Jodhpur should have, therefore, either framed a specific issue or if the issue as framed was considered as sufficient, should have given opportunity to the parties to lead evidence for arriving at a finding whether the contract was to be performed in whole or in part in Marwar. We were inclined to remand the case for evidence as to the term of the contract of agency entered into between the parties in relation to the transactions ill dispute; but learned counsel for the appellants, during the course of arguments, made a statement that no terms of any kind were settled at the time when the relationship of principal and agent was brought into existence between the parties. It was stated that the first step taken in the direction of bringing about the two parties in contract was by a telegram by the defendant from Jodhpur to the plaintiff's firm at Indore on the 5th or 6th of September, 1945, asking them to sell 500 tolas of gold and the plaintiff accepted the business of the agency by carrying out the order. No terms of any sort were settled between the parties and the business was to be conducted according to the custom and usage of the market. In the circumstances, it would be useless to grant any opportunity for further evidence and the point whether the contract was to be performed in whole or in part in Marwar is to be decided on the pleadings and certain admitted facts together with the general law applicable to transactions of this nature.
12. The lower Court has taken into consideration only one fact in holding that a part of the contract was to be performed at Jodhpur, viz., that the losses were paid by the defendant to the plaintiffs' firm at Jodhpur. It was contended that this was done by the defendant under the instructions of the Indore firm as alleged in the plaint, and need not necessarily have been a part of the contract. The explanation is plausible and the fact that the defendant paid to the Jodhpur firm money due to the Indore firm is not sufficient to hold that it was part of the contract that moneys which would become payable to the Indore firm will be paid by the defendant at Jodhpur.
13. There is, however, another aspect of the case. While it is true that according to the allegations in the plaint the purchases and sales of bullion were to take place at Indore, but this was not the whole matter in the contract of agency. The contract of agency implied that if as a result of the transactions profits accrued, they were to be payable by the plaintiff to the defendant, and if losses occurred, they would be paid by the defendant to the plaintiffs. The defendant, like any other reasonable person, entered into this business with an expectation of profit though losses might occur. The payment of profits to defendant or losses to plaintiffs must be deemed to be part of the contract of agency. As no specific terms have been alleged to have been settled between the parties, the general law will apply in deciding the place where these profits or losses were to be paid. The general law is that the debtor must find the creditor and in that view it must be held that part of the contract between the parties was that on accrual of profits they were to be paid by the Indore firm to the defendant at Jodhpur, or in other words, that a part of the contract was to be performed in Marwar. It may equally be held that part of the contract was that if losses occurred, they were to be paid by the defendant to the Indore firm at Indore. The fact that they were actually paid at Jodhpur under instructions of the Indore firm does not indicate, as already stated, that it was part of the contract to do so at Jodhpur. The Indore firm may have, for instance on the occurrence of losses, arranged with any Bank at Jodhpur to receive payments from the defendant, but unless this may have been done as part of the original contract, it is of no consequence in arriving at the place of performance of this part of the contract.
14. The view taken by us is supported by a decision of the Bombay High Court in 'KEDAR MAL BHARMAL v. SURAJ MAL GOVIND RAM', 33 Bom 363, where it has been held that in the case of pakki Adat agency primarily the place of payment of profit is the place where the constituent resides. In the present case also the plaintiffs have alleged themselves to be pakka Adhatias in para 4 of the rejoinder.
15. The relevant portion of the Notification dated 3-6-1943 which was issued by the then Government of Jodhpur under the Defence of India Act as applied to Marwar and is alleged to vitiate the contract of agency, may now be examined. By this Notification, Rule 90 C was added to the Defence of India Rules. Sub-rule (2) of Rule 90 C laid down that 'no person shall enter into forward contract or option in bullion'. In Sub-rule (1) of Rule 90-C, 'forward contract' was defined to mean 'a contract for the delivery of bullion at a future date such date being later than twelve days from the date of the contract' and the word 'contract' was defined to mean 'a contract made, or to be performed in whole or in part in Marwar relating to the sale or purchase of bullion'. By Sub-rule (3), the breach of the provisions of Sub-rule (2) was declared an offence punish-able with fine or imprisonment or both. At first sight, it may appear that what was forbidden to be done in Marwar was the making of the contract for sale or purchase of bullion in Marwar involving delivery beyond 12 days or its performance in whole or in part in Marwar. This is true so far as it goes but it is not only the contracts of sale and purchase which (were forbidden but contracts 'relating to' sale and purchase) were also forbidden to be made or performed in whole or in part in Marwar. It is conceded by learned counsel for the appellant that in the case of contracts which have given rise to this suit, they were all for delivery of bullion beyond 12 days and related to the period when the Notification was in force in Marwar.
16. As discussed above, a part of the contract of agency relating to sale and purchase of bullion, of which delivery was to be given later than 12 days, was Ho be performed in Marwar. Such an agreement having been prohibited by law, and having been declared an offence punishable under Sub-rule (3) of the Notification dated 3-6-43 was illegal and under Section 23 of the Contract Act, it could not be enforced. The suit to recover monies due on an illegal contract must fail.
17. We agree with the finding on the third question as well that if the contract was illegal at its inception, to could not become valid after the expiry of the Notification.
18. The second question arises on the assumption that the contract was neither made nor was to be performed in whole or in part in Murwar. It is conceded that the contract was a legal and valid contract in Indore, and the question for determination is: If according to the law in force where the contract is entered into or is to be performed, the contract is valid, but is invalid according to the law where the remedy is to be enforced, is the suit maintainable? The question is not free from considerable difficultly, but depends upon certain principles of private international law. These principles are stated as Rules or sub-rules in Dicey's Conflict of Laws, Chapter 24, and may be stated as under:
'1. When the intention of the parties to a contract, as to the law governing the contract, is expressed in words, this expressed intention determines the proper law of the contract, and, in general overrides every presumption. 2. When the intention of the parties is not expressed in words, their intention is to be inferred from the terms and nature of the contract, and from the general circumstances of the case and such inferred intention determines the proper law of the contract.
3. In the absence of countervailing considerations, the following presumption as to the proper law of a contract have effect; (a) Prima facie the proper law of the contract is presumed to be the law of the country where the contract is made ('lex loci con-tractus');
(b) When the contract is made in one country and is to be performed either wholly or partly in another, then the proper law of the contract is presumed to be the law of the country where the performance is to take place ('lex loci solutionis'). 4. These rules were subject to the overriding consideration that the validity or invalidity of a contract must be determined in accordance with the law of the forum ('lex fori') independency of the law of any foreign country if and so far as the application of foreign law would be opposed to the public policy of the 'lex fori' or the provisions of a Statute which apply to the contract.
19. The learned commentator observes that: 'it is a general principle of the conflict of laws that the Courts of a State will not apply any foreign law if and so far as its application would lead to results contrary to the fundamental principles of public policy of the 'lex fori'. The Courts of all countries insist, on the other hand, on applying to a case otherwise governed by foreign law those principles of their own law which, in their own view, express basic ideas of morality.' (Page 605 Dicey on Conflict of Laws 6th Edition).
20. On the assumptions made in this case, that the contract was enforceable by the 'lex contractus' or 'lex solutionis' the matter for consideration is whether the contract was unenforceable in Jodhpur as being contrary to the public policy or the law in Marwar. In the present case, the contract cannot be said to be opposed to any basic ideas of morality or public policy and it is to be seen whether the contract was contrary to the provisions of the law in Marwar. The only law referred is of course the Notification of 3rd June 1943. Sub-rule (2) of the Notification was widely worded in so far as it laid down that 'no person shall enter into any forward contract or option in bullion.' But the word 'contract' was given a restricted meaning in Sub-rule (1) so as to limit its operation to contracts entered into in Marwar or to be performed in whole or in part in Marwar. Sub-rule (2), therefore, can only be interpreted to mean that persons were only prohibited to enter into contracts in Marwar or such contracts as were to be performed in whole or in part in Marwar. The prohibition in the Notification was not general in its nature, and, therefore, the contract on the assumptions made was outside the scope of the Notification and could not, therefore, be said to be contrary to the provisions of the law in Marwar. Dicey observes at page 609 of his aforesaid treatise:
'If the statute is silent, the general rule of interpretation comes into play, according to which an English statute is not to be deemed to have any extra-territorial operation, unless such operation is required by the express terms of the Act or by its 'object matter or history'. '
In the present case, the statute was specifically made applicable only to contracts made in Marwar or to be performed in whole or in part in Marwar and as such on the assumption made the contract of agency in this case could not be said to be contrary to the law in Marwar.
21. In 'SANTOSH v. ILLIDGE', (1860) 125 RR 919, a Brazillian sued an English firm trading in Brazil for the non-delivery of slaves under a contract for the sale of them in that Country, which was valid by Brazillian law. The only quest-ion discussed was whether the sale was or was not under the circumstances made illegal by the operation of the statute against slave trading: and in the result the majority of the Exchequer Chamber held that it was not. It may be pointed out that the case was decided directly with regard to the provisions of the British statute in force at the time and it had not been contended in that case that at Common Law, the Court must regard a contract for the sale of slaves as so repugnant to English principles of justice that wherever made it could not be enforced in England.
22. In the treatise on Conflict of Laws by Rabel (Michigan Legal Studies-1947 Edition) certain cases are cited at page 562 embodying the principles elaborated in the American Courts before Prohibition in the application of the laws of 'dry' states against the sale of intoxicating liquor. It has been mentioned that a Court of a 'dry' State as a matter of course, had to enforce its own Statute for the purpose of general welfare. When a Court, however, was not bound by a Statute it would not refuse to entertain such an action merely because the sale if made at the forum would have been invalid; when there was no intention to violate or evade the law of the forum. Thus a sale made outside the State was commonly enforced even though the order was solicited by an agent in the State.
23. Pollock in his book on Contracts (12th Edition) has stated at page 348: 'The Municipal laws of a particular State, specially laws of a prohibitory kind, are as a rule direct only to things done within its jurisdiction. But a particular law may positively forbid the subjects of the State to undertake some particular class of transactions in any part of the world: and where such a law exists, the Courts of that State must give effect to it.'
24. The distinction is noted in a recent case 'BOISSEVAIN v. WELL', reported in 1949-1 All ER 146 where the Defence (Finance) Regulations 1939 as they originally stood prohibited transactions in foreign currency by any person in United Kingdom, except with the permission of the Treasury were subsequently amended by deleting 'in United Kingdom' and as the said Regulations were applicable to all British subjects in any part of the world except certain territories a transaction entered into by a British subject in Monaco, which was not an excepted territory, was held to be unenforceable in England.
25. Therefore, (the finding on the second question is that as the law stood in Marwar the contract, assuming that it was made outside Marwar and was to be performed entirely outside Marwar, was not illegal under the Notification of 3rd June, 1943.
26. As a result of our finding on the first question, however, this appeal fails and is dismissed withcosts.