1. This is an appeal on behalf of the plaintiff and arises out of a suit brought by him to enforce an award on an arbitration without the intervention of the Court. The Subordinate Judge has dismissed the suit mainly on the ground that the agreement for reference to arbitration on which the award is founded is opposed to public policy and is illegal under the provisions of Section 23, Contract Act. It appears that a criminal proceeding was pending against the defendant Lakshmi Kanta Saha under Section 408, I.P.C. A settlement was reached in the course of that proceeding on 20th December 1928. A petition was made on behalf of the accused in which the terms of the settlement were set forth. That petition discloses that under orders of the Court the house of the defendant was searched and an iron safe with documents, unused stamps, and articles of gold and silver within it and also documents, pledged articles etc., found outside the safe were brought to the Court. It was stated in that petition that Gopal Chandra Poddar who is the plaintiff and who was the complainant in that case had brought a case against the defendant claiming the said articles and papers as his own. It is further stated in that petition that depending on the sense of justice and award of Gopal Chandra Poddar and his youngest brother Rai Mohan Poddar so far as regards his claims and ownership in respect of the iron safe and all the documents and pledged articles found within the safe were concerned, possession was given up in respect of those articles which had been recovered on search in favour of the complainant.
2. It is further stated that Lakshmi Kanta Saha would be bound to abide by whatever decision Gopal Chandra Poddar and his youngest brother Rai Mohan Poddar would come to in respect of his claims of ownership in these articles and in respect of a cloth business owned by the complainant, now defendant and managed by him as his gomostha. The award of these two persons, it was further stated, would be completed within 90 days, and if it was not completed within the said 90 days on account of the laches of the complainant and his brother, then the accused would not be bound by any term of settlement. A. further reference was made to a mortgage suit to which it is not necessary to refer having regard to the fact that the plaintiff has already got the mortgage decree in respect of his claim. On this petition being filed, on the same day the criminal proceedings which were started under Section 408 the said proceedings were dropped. It is to be noticed that an offence under Section 408, I.P.C., is a non-compoundable offence. The award was duly made by the two arbitrators and it is to be found at p. 19, part 11 of the paper book. Upon that the plaintiff filed the award in Court on 28th August 1929 and wanted to have a decree on the said award. Defendant 1 filed a written statement on 19th November 1929. Amongst the numerous defences to the suit it is necessary to notice the defence which was founded on the illegality of the agreement for reference to arbitration, and the issues based on the other defences have all been found in favour of the plaintiff. The Subordinate Judge on this issue, with regard to the illegality of agreement for reference to arbitration, came to the conclusion that it was opposed to public policy and it was illegal under Section 23, Contract Act, and therefore the award as the outcome of an illegal reference was also invalid and found that the award cannot be acted upon He accordingly dismissed the suit.
3. Against this decision the plaintiff has brought this appeal and it is contended on his behalf that the Subordinate Judge has committed an error of law in treating the agreement to refer to arbitration as void under the Contract Act. It is contended that as there was a civil liability independent of the liability for an offence under Section 408, I.P.C., the agreement cannot be said to be one which is contrary to public policy. It is difficult to accept this contention in view of the decision of their Lordships of the Judicial Committee of the Privy Council in the case of Kamini Kumar Basu v. Nath Basu . In that case, as in the present, the real question involved was as to whether any part of consideration for the reference to arbitration was illegal. It appears clear from the facts which had already been stated that it was an implied term among other terms of the settlement to refer to arbitration that the complaint under Section 408, I.P.C., would not be further proceeded with. As a matter of fact the order sheet of the same case leaves no room for doubt that the proceeding was dropped in consideration of the fact that the accused who is the present defendant agreed to refer the question of ownership of the several articles to arbitration. That being so the facts fall within the purview of the decision of the case which has been referred to. It is necessary to quote a few lines from the judgment of their Lordships of the Judicial Committee which was delivered by Sir Benode Mitter. Sir Benode Mitter observed thus:
If it was an implied term of reference under the ekrarnama that the complaint would not be further proceeded with, then in their Lordships' opinion the consideration of the reference or the ekrarnama as the case may be is unlawful and the award or the ekrarnama was invalid quite irrespective of the fact whether any prosecution in law had been started.
4. In support of this view Sir Benode Mitter referred to the decision of Jones v. Merionethshire Permanent Benefit Building Society (1892) 1 Ch 173. In that case the secretary of a building society, who had made default in accounting for money paid to him and was threatened by the society with a prosecution for embazzlement, applied for assistance to the plaintiffs, and they gave a written undertaking to the society to make good the greater part of the debt due from the society, the expressed consideration being the forbearance of the society to sue the secretary for the amount for which the plaintiffs made themselves responsible, and in pursuance of that undertaking they gave two promissory notes and some deeds of collateral security to the society. The plaintiffs in giving the undertaking were actuated by the desire to prevent the prosecution and that was known to the directors of the society; but no promise was made that there should be no prosecution. The society brought an action on the promissory notes in the Queen's Bench Division, and the plaintiffs brought an action in the Chancery Division to set aside the promissory notes and the collateral securities on the ground that they were made for illegal consideration. It was held by the Court of appeal in this state of facts that it was an implied term of the agreement that there should be no prosecution; that the agreement was therefore founded on an illegal consideration and void, and that the society could not recover on the promissory notes or enforce the securities; and the society not opposing, they were ordered to be delivered up to the plaintiffs. This decision shows that the Court could not support the agreement which was intended to avoid prosecution. As I have already stated the policy underlying this is that an agreement to stifle prosecution is distinguishable from the lawful compounding of compoundable offences. As the offence is not compoundable under the law the compounding of it must be held to be illegal and opposed to public policy.
5. The effect, in my view, of the agreement in the present case was to take the administration of law out of the hands of the Judges and to put it into the hands of private individuals to determine what is to be done in a particular case and as such it is opposed to public policy. Reliance has been placed by the learned advocate for the appellant on a decision of my learned brother Guha, J., and my learned brother M.C. Ghose, J., who was also a party to that decision. That was the case of Deb Kumar Roy v. Anath Bandhu Sen : AIR1931Cal421 . It is sufficient to say for the purposes of the conclusion to which I have reached that the case is distinguishable from the present one as it has been pointed out at p. 28 of the said report that in that case there was a preexisting civil liability based upon an adjudication of accounts between the parties concerned. That fact is wanting in the present case. Therefore this decision cannot govern the present case. For this reason I am of opinion that the Subordinate Judge has reached a correct conclusion. This appeal must therefore be dismissed. As has been pointed out by the Judicial Committee in the decision referred to above, the defence in the case cannot be commended, but we are compelled to give effect to it on the ground of public policy. In these circumstances we do not think it right to allow any costs to the present respondent.
M.C. Ghose, J.
6. I agree that this appeal should be dismissed. The defendant was a servant of the plaintiff. The plaintiff's case was that the defendant as his servant dishonestly misappropriated the funds of the plaintiff which came to his hands The plaintiff instituted a suit against the defendant in the Court of the Subordinate Judge of Comilla. At the same time he made a complaint before the Magistrate of Comilla under Section 408, I.P.C., and the defendant was brought before the Magistrate in Court to answer the charge of embezzlement. His house was searched and an iron safe and various properties were seized and they were brought into the Magistrate's Court. It is on those circumstances that the defendant agreed with the plaintiff to refer the dispute between the parties to an arbitration. I am clearly of opinion, having regard to the decision in the case of Kamini Kumar Basu Birendra Nath Basu and Jones v. Merionethshire Permanent Benefit Building Society (1892) 1 Ch 173, that in this case the plaintiff cannot succeed as it was clearly an agreement to stifle the criminal proceeding and the defendant was not a free agent but entered into a contract under threat of a criminal conviction.