AGREEMENTS COLLATERAL TO WAGERING AGREEMENTS ARE PERFECTLY LEGAL AND ENFORCEEBALE IN A...

AGREEMENTS COLLATERAL TO WAGERING AGREEMENTS ARE PERFECTLY LEGAL AND ENFORCEEBALE IN A COURT OF LAW

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AGREEMENTS COLLATERAL TO WAGERING AGREEMENTS ARE PERFECTLY LEGAL AND ENFORCEEBALE IN A COURT OF LAW
AGREEMENTS COLLATERAL TO WAGERING AGREEMENTS ARE PERFECTLY LEGAL AND ENFORCEEBALE IN A COURT OF LAW

Aapka Consultant Judgment Series- In this series, we are providing case analysis of Landmark Judgments of Hon’ble Supreme Court of India.

Gherulal Parakh v. Mahadeodas Maiya and Ors.

AIR 1959 SC 781:  1959 SCR Supl. (2) 406

JUDGES: K. Subbarao, Syed Jaffer Iman and A.K. Sarkar

Date of Decision: 26-03-1959

FACTS:-

 Gherulal Parakh (Appellant) and Mahadeodas Maiya (Respondent No. 1) entered into partnership with the object of entering into forward contracts for the purchase and sale of wheat with two other firms with the obligation of sharing equal profit or loss arising out of it. On account of loss, the entire amount was paid by the respondent and the appellant denied his liability for half of the loss by taking the defence that the agreement to enter into wagering contracts was unlawful under Section 23 of Indian Contract Act, 1872. Trial Court dismissed the suit. High Court held that the wagering contract was void but the object was not unlawful and decreed the suit. Hence the present appeal.

ISSUE:-

Whether the agreement of partnership with the object of entering into wagering contract was illegal or immoral or opposed to public policy within the meaning of Section 23 of Indian Contract, Act, 1872?

JUDGMENT:-

 The Hon’ble Supreme Court held that the agreement of partnership with the object of entering into wagering contract was neither illegal nor immoral or opposed to public policy within the meaning of Section 23 of Indian Contract Act.

Firstly, the Supreme Court stated that the void agreements cannot be equated with illegal agreements. The law may either forbid an agreement to be made or if it is made, the court may refuse to enforce it. In the former case it is illegal and in the latter one it is void as it is well stated that all illegal agreements are void but all void agreements are not illegal. Now Section 30 of Indian Contract Act, 1872 is based on the provisions of the Gaming Act, 1845 of England which made a wager void but not illegal in the sense that it is forbidden by law and therefore the primary agreement of a wager is void but the collateral agreement if enforceable within the meaning of sec. 23 of Indian Contract Act is valid and subsisting between the parties. Now in the present matter, the parties were not interested in delivery but only dealing with difference in prices such that they mutually intend the transaction to be of the nature of wager. Though wager was void under sec. 30 of Indian Contract Act but cannot be considered as forbidden by law under sec. 23 of the said act. Hence, any collateral agreement with the object of wagering contract cannot be considered as void due to object forbidden by law under sec. 23 of Indian Contract Act.

Secondly, the Supreme Court stated that any agreement which tends to be injurious to or against the public interest is said to be opposed to public policy. It is a branch of common law and unless any specific principle of public policy is being recognized, the Court cannot invent a head of public policy. The doctrine of public policy applies only when the harm to the general public is incontestable. The policy of law in India is to sustain legality of wagers unlike as in common law, it renders it void and unenforceable. Also, some of the gambling transactions were the perennial source of income to the state. Therefore, it cannot be said that the wagering agreement is opposed to public policy and agreement was unlawful as its object being opposed to public policy under Section 23 of Indian Contract Act.

Lastly, the Supreme Court stated that the said partnership agreement is not immoral as immorality is restricted to sexual immorality like sale or hire of a thing to be used in brothel or agreements for concubinage etc. This limitation is because of certain reasons i.e., (i) its apposition with equally wide concept of immorality under Section 23 highlights the legislative intent to give it a narrow meaning otherwise there will be overlapping of two concepts, (ii) the phrase ‘court regards it as immoral’ in Section 23 highlights that immorality is also a branch of common law and should be restricted to principles settled by courts and (iii) the cases in England and in India confined immorality to sexual immorality.

HELD:-

The Supreme Court held that the partnership agreement between two parties formed with the object of wagering transaction is valid, enforceable and subsisting between the parties and is not forbidden by law or immoral or opposed to public policy within the meaning of Sec. 23 of Indian Contract Act, 1872.

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