Gherulal Parakh vs Mahadeodas Maiya And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 215 of 1955

Decision Date: 26 March, 1959

Coram: Syed Jaffer Imam, A.K. Sarkar, Subbarao K., Subba Rao

In this case the Supreme Court of India delivered its judgment on 26 March 1959, the Bench comprising Justice Syed Jaffer Imam, Justice A. K. Sarkar and Justice Subbarao, K. the parties being Gherulal Parakh as petitioner and Mahadeodas Maiya together with other respondents, the decision reported in 1959 AIR 781 and 1959 SCR Supl. (2) 406 with subsequent citations in later reports. The question for determination was whether an agreement of partnership whose object was to engage in wagering transactions was illegal within the meaning of section 23 of the Indian Contract Act, 1872. The facts disclosed that the petitioner and the first respondent entered into a partnership whose purpose was to enter into forward contracts for the purchase and sale of wheat with two other firms; the agreement provided that the respondent would execute the contracts on behalf of the partnership and that any profit or loss arising therefrom would be shared equally between the partners. The forward transactions ultimately resulted in a loss, and the respondent, having to honour the obligations to the third parties, paid the entire amount due. When the petitioner denied liability for half of that loss, the respondent instituted suit to recover the sum, the petitioner defending himself by contending that the agreement to enter into wagering contracts was unlawful under section 23 of the Contract Act. The trial court dismissed the suit, and on appeal the High Court held that although the wagering contracts were void under section 30 of the Indian Contract Act, the object of the partnership was not unlawful within the meaning of the Act and consequently decreed the suit in favour of the respondent. On behalf of the petitioner it was argued, first, that a wagering contract being void under section 30 was also forbidden by law under section 23; second, that the doctrine of public policy in independent India was so comprehensive that such a contract would be contrary to public policy; third, that wagering contracts were illegal under Hindu law; and fourth, that they were immoral as examined by the Hindu law doctrine of the son’s pious obligation to discharge his father’s debts. The Court held that these contentions were unsustainable in law and must be rejected. While a wagering contract is indeed void and unenforceable under section 30, it is not prohibited by law, and an agreement collateral to such a contract is not unlawful within the meaning of section 23. Consequently a partnership whose object is to carry on wagering transactions is not caught by section 23 of the Act. The Court referred to the authority of Pringle v. Jafer Khan (1883) I.L.R. 5 All. 443 and Shibho Mal v. Lachman Das (1901) I.L.R. 23 All. 165 in support of its reasoning.

The Court listed a series of authorities that had discussed wagering contracts, including Beni Madho Das v. Kaunsal Kishor Dhusar, (1900) I.L.R. 22 All. 452, Md. Gulam Mustafakhan v. Padamsi, A.I.R. (1923) Nag. 48, which were approved; Thacker v. Hardy, (1878) L.R. 4 Q.B. 685; Read v. Anderson, (1882) L.R. 10 Q.B. 100; Bridger v. Savage, (1885) L.R. 15 Q.B. 363; Hyams v. Stuart King, [1908] 2 K.B. 696; Thwaites v. Coulthwaite, (1896) 1 Ch. 496; Brookman v. Mather, (1913) 29 T.L.R. 276 and Jaffrey & Co. v. Bamford, (1921) 2 K.B. 351; Ramloll Thackoorseydass v. Soojumnull Dhondmull, (1848) 4 M.I.A. 339; Doolubdas Pettamberdass v. Ramloll Thackoorseydass and Ors., (1850) 5 M.I.A. 109; Raghoonauth Shoi Chotayloll v. Manickchund and Kaisreechund, (1856) 6 M.I.A. 251, which were merely referred to; and Hill v. William Hill, (1949) 2 All E.R. 452, which was considered. The Court observed that the doctrine of public policy formed only a branch of the common law, and like every other branch it was governed by precedent; its principles had been crystallised under various heads, and although it was permissible to expound those principles to new factual situations, the doctrine could be invoked only where the case presented a clear and undeniable harm to the public. The Court further explained that, while in theory a court might fashion a new head of public policy under exceptional circumstances, such a step would be discouraged because it could disturb the stability of society. The Court then cited additional cases that supported this view, namely Shrinivas Das Lakshminarayan v. Ram Chandra Ramrattandas, I.L.R. (1920) 44 Bom. 6; Bhagwanti Genuji Girme v. Gangabisan Ramgopal, I.L.R. 1941 Bom. 71; and Gopi Tihadi v. Gokhei Panda, I.L.R. 1953 Cuttack 558, all of which were approved. It also mentioned English decisions such as Egerton v. Brownlow, 4 H.L.C. 1; 10 E.R. 359, Janson v. Driefontein Consolidated Mines, Ltd., (1902) A.C. 484; Fender v. St. John-Mildmay, (1938) A.C. 1; and Monkland v. Jack Barclay Ltd., (1951) 1 All E.R. 714, which were referred to for comparative purposes. The Court concluded that, similar to the English common law which never recognised any principle of public policy that declared wagering contracts illegal, the Indian courts, both before and after the enactment of the Indian Contract Act, 1872, consistently held that wagering contracts were not illegal on the ground of public policy and that collateral agreements relating to such contracts were enforceable under law. It reiterated the earlier citation of Ramloll Thackoorseydass v. Soojumnull Dhondmull, (1848) 4 M.I.A. 339, to underscore that gambling or wagering contracts had never been declared illegal by Indian courts as contrary to public policy, nor was there any basis for creating a novel content for the doctrine in relation to gaming and wagering. The Court also observed that the State of Bombay v. R. M. D. Chamaybaugwala, [1957] S.C.R. 874, was considered, and affirmed that both English and Indian common law never struck down wager contracts on public-policy grounds, even though statutes rendered such contracts void. Finally, the Court noted that moral prohibitions against gambling found in Hindu law texts were never given legal effect, had fallen into desuetude, and could not be employed to create a distinct head or principle of public policy applicable to wagering contracts.

The Court observed that no principle of public policy had been established by the courts or by precedent that applied directly to wagering contracts. It further held that there was no authority or legal foundation for importing the Hindu law concept that sons had a pious duty to discharge their father’s debts into the realm of contract law. Section 23 of the Indian Contract Act, being derived from English common law, was to be interpreted in that context. The term “immoral” was described as a broad and variable concept for which no universal standard could be set, and any legislation based on such a fluid notion would defeat its purpose. The provisions of Section 23 signaled that the Legislature intended to give the word a narrow meaning. The limitation expressed as “the Court regards it as immoral” indicated that the concept belonged to the common-law branch and therefore had to be confined to principles that were recognized and settled by the courts. Judicial decisions had limited the scope of “immoral” to cases of sexual immorality, and the Court ruled that wagering could not be added as a new category within that provision.

The appeal, numbered 215 of 1955, was filed against the judgment and decree dated 1 April 1953 of the Calcutta High Court, which itself was an appeal from Original Decree No. 89 of 1946 arising out of the judgment and decree dated 4 December 1945 of the Subordinate Judge, Darjeeling, in Money Suit No. 5 of 1940. The Court’s judgment, delivered on 26 March 1959 by Justice Subba Rao, addressed the legality of a partnership formed to engage in wagering contracts. The appellant, Gherulal Parakh, and the first respondent, Mahadeodas Maiya, who managed two joint families, entered into a partnership with two firms from Hapur—Messrs Mulchand Gulzarimull and Baldeosahay Surajmull—to carry out wagering contracts. The partners agreed that the contracts would be executed in the name of the respondents on behalf of the firm and that any profit or loss would be shared equally. Pursuant to this agreement, the first respondent executed thirty-two contracts with Mulchand and forty-nine contracts with Baldeosahay, resulting in a net loss that required the first respondent to pay the entire amount owed to the Hapur merchants. When the appellant refused to bear his share of the loss, the first respondent, together with his sons, instituted Original Suit No. 18 of 1937 in the Subordinate Court of Darjeeling to recover his portion of the loss.

In the original suit the plaintiff sought recovery of one half of the loss that arose from the transactions with Mulchand, while reserving in the pleading his right to claim any additional amounts that might later be determined as due from him after the final settlement of accounts. The suit was subsequently referred to arbitration, and on the basis of the arbitral award the Subordinate Judge entered a decree granting the first respondent and his sons a sum of three thousand three hundred seventy-five rupees. After the final accounts between the first respondent and the two Hapur merchants had been concluded and the amounts due to those merchants paid, the first respondent instituted a fresh action in the Court of the Subordinate Judge at Darjeeling, the judgment of which is now before this Court on appeal, seeking the recovery of five thousand three hundred rupees together with interest. The plaint in that action was later amended, and by way of the amended plaint the respondents asked for the same relief on the ground that the partnership on which the claim was based had been dissolved. The appellant and his sons, inter alia, pleaded in defence that the agreement between the parties to enter into wagering contracts was unlawful under section twenty-three of the Contract Act, that the partnership had not been registered and therefore the suit was barred by section sixty-nine, sub-section one, of the Partnership Act, and that, in any event, the suit was barred by section two, Rule two, of the Code of Civil Procedure. The learned Subordinate Judge found that the agreement was indeed an agreement to engage in wagering contracts whose profit or loss depended on the rise and fall of market conditions, and consequently held that such an agreement was void because its object was forbidden by law and contrary to public policy. He further observed that the claim relating to the transactions with Mulchand, which had not been included in the earlier suit, was not barred by section two, Rule two, of the Code of Civil Procedure, because the cause of action for that portion of the claim arose only after the earlier suit had been filed. The judge also concluded that the partnership was between the two joint families of the appellant and the first respondent respectively, that such a partnership could not exist in law, and that therefore provision sixty-nine of the Partnership Act was inapplicable. Accordingly, he dismissed the suit and awarded costs to the respondents. On appeal, the learned Judges of the High Court held that the partnership was not between the two joint families but only between the two managers of those families, and consequently found the partnership to be valid. They further held that the business partnership was limited to a single venture with each of the two Hapur merchants for one season, that the partnership had been dissolved after the season ended, and that, as a result, the suit for accounts of the dissolved firm was not within the operation of subsections one and two of section sixty-nine of the Partnership Act. They further found that the

In this case the Court observed that the purpose of the partnership was to engage in the settlement of differences and, although the individual transactions amounted to wagers and were therefore void under section 30 of the Indian Contract Act, the overall object of the partnership was not illegal within the meaning of section 23 of the same Act. Regarding the claim for loss, the learned Judges found that there was no satisfactory proof that the first respondent had paid any amount in respect of the loss incurred in the contracts with Mulchand, but it was established that he had paid a sum of Rs 7,615 as loss arising from the contracts entered into with Baldeosahay. Consequently, the High Court decreed that the first respondent was entitled to a sum of Rs 3,807-8-0 and it disallowed any claim for interest on that amount because, being a suit for the accounts of a dissolved firm, there was no liability to pay interest under the circumstances. The High Court therefore granted the decree in favour of the first respondent for the stated amount together with a minor additional item and dismissed the suit as against the plaintiffs other than the first respondent and the defendants other than the appellant. Before turning to the legal questions raised, the Court found it appropriate to resolve the factual disputes raised by the parties. Counsel for the appellant argued that the finding of the High Court that the partnership had been dissolved after the season was not supported by the pleadings or the evidence. The plaint, as originally drafted and presented, made no express reference to a dissolution of the business and did not seek relief for the accounts of a dissolved firm. Nevertheless, the plaint disclosed that the parties had jointly entered into contracts with two merchants between 23 March 1937 and 17 June 1937, that the plaintiffs had obtained full accounts of profit and loss from those merchants after 17 June 1937, and that they had issued a notice to the defendants demanding payment of Rs 4,146-4-3, representing half of the total amounts paid by the plaintiffs under those contracts, a liability which the defendants denied. The suit was thus filed for recovery of that sum. The defendant filed a written statement on 12 June 1940 but did not raise a plea under section 69 of the Partnership Act; he later filed an additional written statement on 9 November 1941 expressly setting up that defence. Subsequently, the plaintiffs sought to amend the plaint by inserting a new paragraph 10, stating that even section 69 of the Indian Partnership Act did not bar the present suit because the joint business had been dissolved and the suit required only an examination of the accounts of the said joint business.

On August 14, 1942 the defendant filed a further additional written-statement contending that the allegations set out in paragraph 2 of the plaint were untrue and that, because the plaint did not state any date for the alleged dissolution of the partnership, the plaintiffs’ case founded on that alleged dissolution could not be maintained. It is apparent from the pleadings that, although an express allegation that the partnership had been dissolved was only introduced by the amendment dated 17 November 1941, the original plaint already contained all of the factual material necessary to support that plea. In their written-statement the defendants, inter alia, denied the existence of any partnership that could have entered into forward contracts with the two merchants and, consistent with that denial, they did not specifically contest the factual assertions made by the plaintiffs. The factual issues, except for the question of whether the partnership was formed between the two families collectively or only between the two managers of those families—a question on which the Subordinate Judge and the High Court differed—were found by both Courts to be the same. From those findings it followed that the partnership existed solely for the purpose of forward contracts with the two named individuals and only for a particular season. Although those findings were not based on any direct documentary evidence, the lack of a clear time-limit in the documents, together with the defendants’ conduct in the earlier suit that ended in an award and their conduct in the present pleadings, led to the conclusion that no alternative inference was possible and that the High Court’s view was correct. Consequently, Section 42 of the Partnership Act applied directly. Under that provision, where a firm is created to carry out one or more adventures or undertakings and there is no contract to the contrary, the firm is dissolved when the undertaking is completed. In the present case the partnership had been created to carry out contracts with specified persons during a particular season, and once those contracts were closed the partnership was deemed dissolved. At this stage a point raised by counsel for the respondents can be resolved. Counsel argued that neither the Subordinate Judge nor the High Court had found that the first respondent had entered into any wagering transactions with either of the two Hapur merchants, and therefore no question of illegality arose. The law on wagering contracts is settled: to constitute a wagering contract there must be proof that the parties agreed that performance of the contract would not be demanded, that only the differential in price would be payable, and that there was a common intention among the parties not to demand delivery of the goods but merely to settle the price difference.

The Court observed that a wager requires the parties to agree that only the difference in price will be taken upon the occurrence of a specified event. Relying on that legal principle, it was submitted that the case lacked any evidence showing a common intention between the first respondent and the Hapur merchants to refrain from taking delivery of the goods and to limit their transaction solely to gambling on price differences. The Court held that this submission was not directly relevant to the issue before it. The suit had been instituted on the ground that a partnership, which had subsequently been dissolved, owed accounts. The defendants argued that the purpose of the partnership was to engage in wagering transactions, that is, to gamble on price differences without any intention to give or receive possession of goods. After examining both direct and circumstantial evidence, the Court concluded that the partnership agreement had indeed been formed with the purpose of carrying on wagering transactions, and that the parties did not intend to demand or accept delivery of any goods but only to settle the difference in prices. The Court characterized this conclusion as a concurrent finding of fact and, following its usual practice, accepted it as established. Accordingly, the Court proceeded on the premise that the appellant and the first respondent had entered into a partnership for the purpose of wagering, and that the claim before the Court related only to the loss suffered in connection with those wagering transactions.

The main and substantial point in the case was whether the partnership agreement was unlawful under section 23 of the Indian Contract Act. Section 23, omitting portions unnecessary for the present purpose, provides that the consideration or object of an agreement is lawful unless it is forbidden by law, or the court regards it as immoral, or opposed to public policy. In each of those situations the consideration or object is said to be unlawful, and any agreement whose object or consideration is unlawful is void. Accordingly, if the object of an agreement—whether it is a partnership or any other contract—is forbidden by law, immoral, or contrary to public policy, the agreement is void. Counsel for the appellant advanced three sub-arguments: that the object of the partnership was (i) forbidden by law, (ii) opposed to public policy, and (iii) immoral. The Court examined each sub-argument separately. Regarding the first sub-argument, the Court noted that section 30 of the Indian Contract Act declares that agreements by way of wager are void, and further provides that no suit may be instituted to recover anything said to have been won on a wager or entrusted to a person to abide by the result of any game or other uncertain event on which a wager is made. The Court also referred to Sir William Anson’s definition of a wager as a promise to give money or its equivalent upon the determination or ascertainment of

The Court observed that the reference to an uncertain event accurately illustrates the concept of a wager that is declared void by section 30 of the Indian Contract Act. It explained that a contract which only provides for the payment of price differences, without either party intending to deliver or receive the goods, is, by definition, a wager within the meaning of section 30. Accordingly, the argument advanced that such a transaction, being void under section 30, is also forbidden by law as defined in section 23 of the Contract Act. The Court then framed the precise question: whether a contract that is void can be equated with a contract that is forbidden by law. The Court noted that this question is not new and has been raised before in both English and Indian jurisprudence, and that it has been uniformly rejected. Turning to English law, the Court stated that the law governing gaming and wagering contracts in England is found in the Gaming Acts of 1845 and 1892. It observed that the judicial decisions relied on the specific provisions of those Acts, and therefore the relevant sections should be examined. Section 18 of the Gaming Act of 1845 provides that all contracts by way of gaming are void and that wagers or sums deposited with stakeholders are not recoverable at law, subject to a saving for subscriptions for prizes. The same provision further declares that no suit may be brought in any court of law or equity to recover any money or valuable thing alleged to be won on any wager, or any amount deposited for the event on which the wager was made, except where the enactment is not applicable to subscriptions or contributions towards a prize for a lawful game, sport, pastime or exercise. Section 1 of the Gaming Act of 1892 adds that any promise, whether express or implied, to repay sums paid under contracts that were declared null and void by the 1845 Act, or to pay any commission, fee, reward, or any other consideration in respect of such contracts, shall itself be null and void, and no legal action shall be permitted to recover such sums. The Court pointed out that while the 1845 Act rendered all kinds of wagers or games void, its prohibition was limited to the recovery of money or valuable things won on a wager or deposited with stakeholders. In contrast, the 1892 Act went further by declaring that even the money paid under or in connection with a void wagering contract is itself unrecoverable, thereby expanding the earlier prohibition to the very sums paid under such void agreements.

The Court explained that any sum of money payable under wagering contracts covered by the Gaming Act of 1845 could not be recovered, and that an agent who bet on behalf of a principal could not claim any commission or reward in a court of law. It was observed that English law, up to the enactment of the Gaming Act of 1892, was substantially similar to Indian law, and that English authorities on the subject would therefore be highly relevant to the matter before the Court. The Court quoted Sir William Anson’s treatise, On Law of Contracts, noting the passage on page 205 which states that “the law may either actually forbid an agreement to be made, or it may merely say that if it is made the Courts will not enforce it. In the former case it is illegal, in the latter only void; but inasmuch as illegal contracts are also void, though void contracts are not necessarily illegal, the distinction is for most purposes not important, and even judges seem sometimes to treat the two terms as interchangeable.” The author then applied these principles to wagers, citing page 212 where it is observed that “Wagers are only void, no taint of illegality attached to a transaction, whereby one man employed another to make bets for him; the ordinary rules which govern the relation of employer and employed applied in such a case.” Further, the Court referred to Pollock and Mulla’s commentary on the Indian Contract Act, section 23, page 158, which defines “forbidden by law” as an act or undertaking that is either prohibited by a legislative enactment or by an unwritten principle of law, and explains that in India, where criminal law is codified, acts forbidden by law principally comprise offences punishable under the Penal Code or those prohibited by special statutes, regulations, or orders issued under legislative authority.

The Court then turned to a number of authorities, both English and Indian, which illustrate the distinction between a contract that is forbidden by law and one that is merely void. In Thacker v. Hardy (1) the plaintiff, a broker, had been employed by the defendant to speculate on his behalf on the stock exchange and had entered into contracts with a third party that made him personally liable. The broker sued the defendant for indemnity against the liability he had incurred and for his broker’s commission. The Court held that the broker was entitled to recover despite the provisions of sections 8 and 9 of the Victorian Gaming Act 109, section 18 (English Gaming Act, 1845). Citing Lindley, J.’s observation on page 687, the Court noted that “Now, if gaming and wagering were illegal, I should be of opinion that the illegality of the transactions …” indicating that, although gaming contracts are unenforceable, they are not deemed illegal, and therefore the ordinary principles of agency and indemnity may still apply.

In earlier decisions such as Cannan v. Bryce (3 B. & Ald. 179), McKinnell v. Robinson (3 M. & W. 434) and Lyne v. Siesfeld (1 H. & N. 278), the courts held that a person could not obtain, in a court of law, any indemnity from the defendant for the liabilities he had incurred. Nevertheless, other authorities have ruled that although contracts for gaming and wagering cannot be enforced, those contracts are not illegal. Fitch v. Jones (5 E. & B. 238) expresses this principle clearly. The courts also observed that money paid in discharge of a bet constitutes good consideration for a bill of exchange, as stated in Oulds v. Harrison (10 Ex. 572). Further, when a plaintiff pays money at the request of a defendant, the plaintiff may recover that money by an action against the defendant, as shown in Knight v. Camber (15 C.B. 562), Jessopp v. Lutwyoho (10 Ex. 614) and Rosewarne v. Billing (15 C. B. (N. S.) 316). Moreover, a request to pay may be inferred from an authority to bet, according to Oldham v. Ramsden (44 L 309). Considering these decisions, the Judge could not conclude that the statute previously referred to barred the plaintiff from maintaining the action.

In Read v. Anderson, the case involved an agent who was hired to make a bet in his own name on behalf of his principal, raising a similar question concerning consideration. Justice Hawkins explained the law at page 104, stating that at common law wagers were not illegal and, before the enactment of 8 & 9 Vict. c. 109, actions were regularly brought to recover money won on such wagers. He further explained that the purpose of 8 & 9 Vict. c. 109, which was passed in 1845, was not to render formerly lawful wagers illegal but merely to withdraw legal enforcement, leaving the parties to honour the wagers as they saw fit. After referring to section 18 of the same Act, the learned judge observed at page 105 that the statutory language did not affect the legality of wagering contracts; the contracts were merely rendered null and void and could not be enforced by any legal process. He noted that a large number of authorities supported this interpretation of the statute. Justice Hawkins’s judgment was subsequently confirmed on appeal, reported in 13 Q. B. 779, on the basis that the agency became irrevocable upon the making of the bet. Although the Court of Appeal’s decision could not be treated as a direct ruling on this precise issue, the same principle was reaffirmed in Bridger v. Savage. In that case the plaintiff sued his agent for the amount the agent had received as winnings from the persons with whom the agent had bet, and Mr. Brett, M. R., observed at page 366 that the defendant had received the money.

The Court observed that the defendant had entered into a contract with the plaintiff to hand over the money to the plaintiff once the defendant had actually received it. The Court stated that this arrangement constituted a perfectly legal contract. Nevertheless, the defendant contended that the contract was rendered illegal by the provisions of 8 & 9 Vict. c. 109, s. 18. The Court explained that several earlier decisions had held that the statutory provision applies only to the original betting contract formed between the two bettors themselves, and not to a subsequent agreement such as the one between the plaintiff and the defendant.

Bowen, L. J., expressed a similar view at page 367. He explained that the original betting contract is not illegal; rather, it is merely void. He added that when a bettor pays his stake, he does nothing unlawful. By paying, the bettor simply waives a benefit that the statute had given him and transfers good title to the money to the person who receives it. Consequently, once the bet is paid, the transaction is complete, and payment to an agent cannot be challenged as an improper payment to the agent’s principal. Bowen concluded that this principle governs the present case.

The Court then referred to earlier authorities that support this principle. It cited Sharp v. Taylor (2 Phil. 801), Johnson v. Lansley (12 C. B. 468), and Beeston v. Beeston (I Ex. D. 13), all of which demonstrate that an action based on such a contract is maintainable. The Court noted that the only contrary authority, Beyer v. Adams (26 L 841), could not be upheld and was not regarded as law.

The Court held that the present case laid down the correct principle and was supported by the earlier authorities mentioned. It further referred to the decision in Partridge v. Mallandaine (1) which held that persons who receive profits from betting that they systematically carry on are liable to income tax on those profits as “vocation” income under 5 & 6 Vict. c. 35 (the Income Tax Act), Schedule D. Hawkins, J., rejecting the argument that the profession of a bookmaker does not fall within the meaning of the Income Tax Act, observed at page 278 that mere betting is not illegal. He stated that a person may freely bet if he wishes, although he may encounter difficulty in obtaining the stakes from dishonest bettors who refuse to pay.

The Court also discussed the decision in Hyams v. Stuart King (1), which addressed the legality of a fresh agreement between parties to a wager for consideration. In that case, two bookmakers had engaged in betting transactions, which led the defendant to issue a cheque to the plaintiff for the amount of bets the defendant had lost. At the defendant’s request, the plaintiff held the cheque for a period, and a portion of the cheque’s amount was subsequently paid by the defendant.

In the case that the Court discussed, the defendant had originally given the plaintiff a cheque representing the amount of bets that the defendant had lost. The plaintiff, at the request of the defendant, held the cheque for a period, and during that time part of the cheque’s amount was paid by the defendant. Afterwards the parties reached a new oral agreement: the plaintiff agreed to keep the cheque for an additional period and to refrain from declaring the defendant a defaulter, which might have damaged the defendant’s reputation with his customers; in return the defendant promised to pay the remaining balance within a few days. The defendant never fulfilled this promise, and the plaintiff instituted legal proceedings to recover the unpaid balance on the basis of the fresh oral contract. The Court of Appeal, by a majority decision, held that the new oral agreement was supported by good consideration, and consequently the plaintiff was entitled to recover the sum due. A dissenting judge, Fletcher Moulton, served as the lone dissent. Sir Gorell Barnes, delivering the majority judgment, presented three questions for determination: first, whether the new contract fell within the provisions of the Gaming Act, 8 & 9 Vict. c. 109, section 18; second, whether any illegality affected that contract; and third, whether the contract was a lawful agreement founded upon good consideration. Addressing the second question, which was pertinent to the present matter, the President observed that there was nothing strictly illegal about making the bets; the bets were merely void under the Gaming Act, and there was no illegality in paying them. He further explained that neither the issuance of the cheque nor its payment constituted an illegal act, although the statute deemed the consideration for the cheque illegal, rendering the cheque void in the plaintiff’s hands. The statutes did not criminalize the giving or paying of the cheque, nor imposed any penalty for such actions; their purpose was limited to preventing enforcement of gambling or wagering contracts in courts of law or equity. This view aligned with the established English jurisprudence that distinguishes a contract that is void from one that is illegal. The case introduced the issue of whether a substituted agreement for consideration between the same parties to a wager could be enforced; the majority concluded that it could, while noting the dissent of Fletcher Moulton, whose dissent would be considered later. These authorities collectively affirmed the principle that, although a wagering contract is void and unenforceable, it is not illegal, and therefore the illegality does not impair the validity of a collateral contract, a principle that has also been applied to collateral partnership agreements.

In the matter of contracts of partnership, the court examined several decisions concerning the legality of partnerships formed to carry on bookmaking and betting activities. In Thwaites v. Coulthwaite (1), the legality of a partnership engaged in bookmaking and betting was directly questioned. In that case the plaintiff and the defendant were described as partners in a bookmakers and betting business that the defendant was operating. The plaintiff sought an account of the partnership’s profits, while the defendant argued that, because of the nature of the business, the court could not grant such relief. Justice Chitty rejected the plaintiff’s plea and held that the partnership was valid. He gave several reasons, including the observation recorded on page 498 that the Gaming Act, 1845 (8 & 9 Vict. c. 109) did not make betting illegal; the statute merely avoided the wagering contract. He quoted the provision verbatim: “The Gaming Act, 1845 (8 & 9 Vict. c. 109), did not make betting illegal; this statute, as is well known, merely avoided the wagering contract. A man may make a single bet or many bets; he may habitually bet; he may carry on a betting or bookmakers business within the statute, provided the business as carried on by him does not fall within the prohibition of the Betting Act, 1853.” A later case, Thomas v. Day (1), raised a similar issue. There the plaintiff claimed an account and money due under a partnership that he alleged existed with the defendant for the purpose of taking an office and carrying on a betting business as bookmakers. Justice Darling held that a partnership to carry on the business of a bookmaker was not recognised by law, and even assuming such a legal partnership existed, an action for account could not lie between the two bookmakers because the transactions were founded on betting and gambling. Although that judgment appears to support the appellant’s position, the learned judge did not refer to the earlier decision in Thwaites, and subsequent authorities did not follow Darling’s view. When a comparable objection was raised in Brookman v. Mather (2), Justice Avery rejected the plea and entered a decree in favour of the plaintiff. In that case the parties had entered into a partnership to carry on a betting business; the partnership was dissolved in 1910 and the defendant gave the plaintiff a promissory note for an amount found due to the plaintiff. The plaintiff sued for recovery of the amount under the note. Justice Avery reiterated that betting was not illegal per se. When the decision in Thomas v. Day (1) was later cited to support the broad principle that the betting business could not be recognised as legal in a court of justice, the learned judge observed that the earlier case had been decided without reference to Thwaites (1) (1908) 24 T.L.R. 272 and (2) (1913) 29 T.L.R. 276. Consequently, that judgment corrected the deviation made by Justice Darling in Thomas v. Day (2) and brought the case law back in line with the earlier precedents. The restored view was again accepted and applied in Keen v. Price (3), where an action by one partner in a bookmakers and betting business against the other for an account of the partnership dealings was entertained.

In that earlier case the Court allowed the defendant to raise an objection to repaying any sum that represented profits derived from the betting business. The apparent inconsistency between the two portions of the decision was explained by reference to the explicit wording of the provisions of the Gaming Act of 1892. While discussing Thwaites v. Coulthwaite (1), in which Chitty, J. had held that an action for an account of partnership profits was permissible, Sargant, J. observed that the Gaming Act, 1892, had not been mentioned in that judgment. He recorded at page 101 that “Curiously enough, in that case the Gaming Act, 1892, was not referred to, and although the decision is a good one on the general law, it cannot be regarded as a decision on the Act of 1892.” This observation reinforced the principle that a wager was not, per se, illegal, but it also clarified that after the enactment of the Gaming Act, 1892, a claim for such amounts, even when based on a collateral agreement, could not be maintained. In O'Connor and Ould v. Ralston (4), the plaintiff, a firm of bookmakers, sued the defendant for the value of five cheques drawn on his bank to settle bets that the plaintiff had lost and that had been dishonoured upon presentation. Darling, J. held that because the plaintiffs had formed an association for the purpose of carrying on a betting business, the action could not lie, and he based this conclusion on the dissenting view of Fletcher Moulton, L. J., expressed in Hyams v. Stuart King (3). The stance taken by Darling, J. was later rejected in Jeffrey Co. v. Bamford (1), where McCardie, J. declared that a partnership formed to conduct a betting and book-making enterprise was not inherently illegal or impossible under the law. At page 356 he affirmed, “betting or wagering is not illegal at common law… It has been repeatedly pointed out that mere betting on horse races is not illegal.” After reviewing the earlier authorities already considered and some observations of Fletcher Moulton, L. J., McCardie, J. concluded that the partnership was lawful. The Court then indicated that it would examine the decision in Hill v. William Hill (I) to determine whether the argument of counsel for the appellant—that that decision endorsed either the dissenting view of Fletcher Moulton in Hyams v. Stuart King (3) or the view of Darling, J. in Thomas v. Day (2) and O'Connor and Ould v. Ralston (4)—had any substance. The facts in Hill v. William Hill (I) were that the appellant had betting transactions with the respondents, a firm of bookmakers, as

In the facts of the case, the appellant incurred a loss of £3,635-12-6 as a result of betting transactions with the respondents. Because the appellant could not satisfy this liability, the dispute was referred to the committee of Tattersalls. The committee ordered that the appellant should pay £635-12-6 to the respondents within fourteen days and that the remaining balance should be paid in monthly instalments of £100. The committee further stipulated that failure to make these payments would cause the appellant to be reported to the committee, which would lead to his being warned off Newmarket Heath and recorded as a defaulter. The appellant subsequently informed the respondents that he was unable to meet the £635-12-6 deadline and proposed to send a post-dated cheque for that amount, dated 10 October 1946, together with an agreement to continue the £100 monthly instalments thereafter. The respondents accepted this proposal, and the appellant mailed the post-dated cheque along with a letter confirming his commitment to the instalments. When the cheque was presented, it was dishonoured and the appellant did not pay the remaining amount. Consequently, the respondents instituted legal proceedings to recover the sum according to the later agreement. The respondents argued that the amount the appellant promised to pay was not “money won upon a wager” within the meaning of the second branch of section 18 of the Gaming Act, 1845, but rather a debt arising from a new lawful and enforceable contract; they further contended that even if the sum were characterised as winnings, the agreement fell outside the scope of that statutory provision. By a narrow majority of four to three, the House of Lords held that the later agreement created a fresh promise to pay money that had been won on a wager and that the second branch of section 18 applied to all actions seeking recovery of money alleged to have been won on a wager, rendering the contract unenforceable. In reaching this determination, Viscount Simon, speaking for the majority, concurred with the earlier judgment of Fletcher Moulton, L.J., that the bond represented an agreement to pay winnings despite the presence of new consideration, and thus was void under the second limb of section 18. The judgment then referred to the earlier case of Hyams v. Stuart King, noting that the suit in that matter was founded on a subsequent agreement between the same parties to the original wager. In Hyams, the majority of judges found that the subsequent agreement was supported by good consideration, whereas Fletcher Moulton, L.J., dissented. The dissent, recorded at page 712, emphasized that insufficient attention had been given to the distinction between the two parts of the Gaming Act, 1845.

Fletcher Moulton, L. J. observed that the later clause of the statute had been treated as merely repeating the earlier clause, a view which he rejected. He explained that, with respect to the actual wagering contract, the earlier provision was sufficient because it declared such a contract absolutely void, as reported in the 1908 case citation. He further noted that it would be unnecessary to add a provision that no suit could be brought upon a contract already voided by statute. In his opinion, the language of the later provision was considerably broader. He stated that it expressly prohibited any action to recover anything claimed to have been won on any wager, without limiting the application to the wagering contract itself. In other words, he explained that wherever a contractual obligation involved the payment of money won on a wager, the courts were barred from enforcing that portion of the obligation. These observations were made in the specific factual context of the case under discussion, where the parties to the original wager were the litigants.

The court then considered two principal questions. First, it examined whether the broader clause of the statutory section was comprehensive enough to encompass an agreement to recover money alleged to have been won on a wager, even when that agreement was a substituted contract between the same parties. Fletcher Moulton, L. J. held that the broader clause was indeed wide and comprehensive, allowing the suit—though based on a substituted agreement—to fall within the meaning of the statutory language. Second, the judge addressed whether the defendants’ firm, which operated as an association for betting, could be regarded as a legal partnership under English law. Relying on the Gaming Act of 1892, the judge concluded that English law did not permit such a partnership. He explained that a partnership requires each partner to act as an agent of the partnership, with authority to make payments on its behalf and to receive credit in the partnership accounts. However, the Gaming Act of 1892 rendered all promises to pay any sum of money in respect of a wagering contract null and void, a wording he considered broad enough to invalidate the fundamental contract that underlies a partnership. Consequently, he opined that no such partnership could exist, and that the action was untenable for that reason alone.

It was observed that the suit had been wrongly framed and should have been dismissed with costs. From those observations it was clear that Fletcher Moulton, L. J., articulated two principal propositions. First, he held that the second part of section 18 of the Gaming Act 1845 was sufficiently wide to encompass a claim for the recovery of money alleged to have been won on a wager, even when that claim was founded upon a substituted contract between the same parties. Second, he opined that, because of the expansive language of the Gaming Act 1892, even the fundamental contract that formed the basis of a partnership was rendered a nullity. The learned Lord Justice did not venture to say how a void wagering contract might affect a collateral contract. In Hill’s case (1) the only issue that arose was whether the second part of section 18 barred the maintainability of a suit brought under a substituted agreement for the recovery of money won on a wager. The majority of that judgment accepted Fletcher Moulton’s view on this first issue, while the second issue—whether a void wagering contract would invalidate a collateral contract—did not come before the court for consideration. The House of Lords, neither expressly nor by necessary implication, held that a collateral contract of partnership or agency was illegal, and it did not suggest that the long series of decisions previously cited were wrongly decided. Consequently, that judgment did not support the argument advanced by counsel for the appellant. The legal position in India was held to be the same. Prior to the passage of the Act for Avoiding Wagers 1848, the law governing wagers applicable in British India was the common law of England. The Judicial Committee, in Ramloll Thackoorseydass v. Soojumnull Dhondmull (1) (1921) 2 K.B. 351; (2) (1848) 4 M.I.A. 339, expressly ruled that English common law applied in India and that, under that law, an action on a wager could be maintained. The wager in that case concerned the average price that opium would fetch at the next Government sale in Calcutta. Lord Campbell, rejecting the contention that the wager was illegal, observed at page 349 that “The Statute, 8 & 9 Viet. c. 109, does not extend to India,” and noted that although both parties were Hindus, no specific Hindu law was alleged to govern the matter, so the case must be decided by English common law. This decision directly addressed the point now before the Court and favored the respondents. The Privy Council later examined a similar question in Doolubdass Pettamberdass v. Ramloll Thackoorseydass and others, where the wager also concerned the price that Patna opium would fetch at the next Government sale in Calcutta. In that case the plaintiff filed a suit in the Supreme Court of Bombay in January 1847 to recover the money won on the wager, and after the suit was filed, Act 21 of 1848 was enacted by the Indian legislature.

The legislation declared that any agreement, whether oral, written or otherwise, made for the purpose of gaming or wagering would be null and void, and that no court of law or equity could entertain a suit to recover any sum of money or valuable thing claimed to have been won on such a wager. This provision corresponded closely to section eighteen of the Gaming Act of 1845. The judges subsequently observed that the contract in question was not void and that Act 21 of 1848 would not nullify contracts that had been entered into before that Act came into force. Addressing the contention that Hindu law regarded such contracts as void, the judges quoted their earlier observation in Ramloll Thackoorserdas v. Soojumnull Dhondmull, noting on page 127 that they were not satisfied from the authorities cited that a Hindu rule prohibiting these wagers existed. The Judicial Committee reiterated the same principle in the case of Raghoonauth Sahoi Chotayloll v. (1) (1850) 5 M.I.A. 109, in the decision reported as (2) (1848) 4 M.I.A. 339, and in Manickchund and Kaisreechund (1). In those authorities the Committee held that a wagering contract in India on the average price that opium would fetch at a future government sale was lawful and could be enforced prior to the passage of Legislative Act No. 21 of 1848. Collectively, the three Privy Council rulings established that, before the enactment of Act 21 of 1848, wagering contracts in India were governed by English common law, were not void, and were therefore enforceable in the courts. The decisions also affirmed that Hindu law did not forbid such wagers. The same principle was later applied by Indian courts after the enactment of the Contract Act. For instance, an agent who had paid the loss incurred by his own betting was permitted to recover that amount from his principal in Pringle v. Jafar Khan (2). The judgment, quoted on page 445, explained that the contract was not illegal; betting on horse races could not be said to be illegal in a way that tainted any related transaction. The Court distinguished between an agreement that is merely void and one whose consideration is unlawful, as defined in the Contract Act. Section 23 identifies circumstances in which the consideration of an agreement is unlawful, rendering the agreement void and unenforceable. Section 30, by contrast, deals with agreements that are only void, where the consideration is not necessarily unlawful. Consequently, there was no reason to prevent the plaintiff from recovering the sum he had paid. A similar principle was applied in Shibho Mal v. Lachman Das (3), where an agent who had discharged the losses on wagering transactions was allowed to recover the amounts from his principal. In Beni Madho Das v. Kaunsal Kishor Dhusar (4), the plaintiff who had lent money to the defendant to enable him to pay

In the matter before the Court, a decree had been issued allowing a plaintiff to recover a sum that represented a gambling debt from the defendant. The factual scenario involved two partners who had entered into a wagering contract with a third party, as reported in the cases cited at (1) (1856) 6 M.I.A. 251, (3) (1901) I.L.R. 23 All. 165, (2) (1883) I.L.R. 5 All. 443 and (4) (1900) I.L.R. 22 All. 452. In that arrangement one partner satisfied not only his own liability but also the liability of his co-partner under the wager. The Nagpur High Court, in the decision of Md. Gulam Mustafakhan v. Padamsi (1), held that the partner who had made the payment was entitled to claim the other partner’s share of the loss. The learned judge reiterated the principle that had already been accepted in the earlier authorities, stating at page 49 that “Section 30 of the Indian Contract Act does not affect agreements or transactions collateral to wagers….” The court explained that this line of authority rested on the well-settled proposition that a contract of wager is void but not illegal, and therefore a collateral agreement relating to that wager could be enforced.

Before concluding the discussion of that issue, the Court examined a subsidiary argument raised by counsel for the appellant. The counsel contended that, although a partnership formed for the purpose of betting was not illegal, the loss paid by one partner on behalf of the partnership should not be considered in the accounting of the partnership. To support that position, counsel relied on a passage from Chitty’s Contract (page 495, paragraph 908), which observed: “Inasmuch as betting is not in itself illegal, the law does not refuse to recognise a partnership formed for the purpose of betting. Upon the dissolution of such a partnership an account may be ordered. Each partner has a right to recover his share of the capital subscribed, so far as it has not been spent; but he cannot claim an account of profits or repayments of amounts advanced by him which have actually been applied in paying the bets of the partnership.” The Court then considered two authorities cited in support of that view: Thwaites v. Coulthwaite (2) and Saffery v. Mayer (3). The first case had already been discussed; there, Chitty, J. left open the question of the legality of certain transactions until it arose on the taking of the account. The observations and the final decision in Thwaites v. Coulthwaite, contrary to the appellant’s hope, reinforced the respondent’s position because the question of particular transactions was limited to those prohibited by the Betting Act, 1853. Transactions prohibited by that Act were illegal, and consequently a partnership could not rely on such transactions. The second case, Saffery v. Mayer (1), involved a suit for recovery of money advanced by one person to another for the purpose of betting on horses on their joint account. The appellate Court held that, by reason of the provisions of the Gaming Act, 1892, the

In the matter before the Court, it was held that the suit could not be maintained because the decision depended entirely upon the provisions of the Gaming Act, 1892. The learned judge, Smith, M. R., observed that the plaintiff had transferred money to the defendant under a contract that had been declared null and void, and consequently the claim could not be recovered under the second limb of the relevant section of that Act. The other Lord Justices also based their judgments on the express wording of the Gaming Act, 1892. Moreover, the Court of Appeal pointed out that in Thwaites’ Case (2) the judgment of Chitty, J. failed to consider the effect of the Gaming Act, 1892, on the question of whether the action was maintainable. Hence, the passage in Chitty’s contract must be interpreted only in the light of the provisions of the Gaming Act, 1892. From this discussion the Court derived several propositions. First, under English common law a wager was regarded as a valid contract, rendering both the primary wager and any collateral agreement enforceable. Second, after the enactment of the Gaming Act, 1845, a wager was made void but not illegal, so that the primary wager became void while a collateral agreement remained enforceable. Third, there had been a conflict as to whether the second part of section 18 of the Gaming Act, 1845, extended to a claim for the recovery of money or valuables won under a substituted contract between the same parties; the House of Lords, in Hill’s Case (1), finally settled the dispute by holding that such a claim was not sustainable whether it arose from the original wager or a substituted agreement. Fourth, the comprehensive language of the Gaming Act, 1892, rendered even collateral contracts—including partnership agreements—unenforceable. Fifth, section 30 of the Indian Contract Act is based upon section 18 of the Gaming Act, 1845, and although a wager is void and unenforceable, it is not forbidden by law; consequently, the object of a collateral agreement is not unlawful under section 23 of the Contract Act. Sixth, because a partnership is an agreement within the meaning of section 23 of the Indian Contract Act, it is not unlawful even though its purpose is to carry on wagering transactions. Accordingly, the Court held that, in the present case, the partnership did not fall within the meaning of unlawful under section 23(A) of the Contract Act. Regarding the second point on public policy, counsel for the appellant submitted that the concept of public policy is very broad and, in independent India, its content should be measured with reference to the political, social and economic policies of a welfare State as well as the ancient traditions reflected in the Srutis, Smritis and other classical sources.

Nibandas. Before addressing the argument presented by the learned counsel, the Court found it useful to first determine the meaning of the concept of public policy and to observe how courts in England and India had applied that concept in various situations. The Court referred to the authority of Cheshire and Fifoot, whose third edition of “Law of Contract” contained a passage on page 280 stating that the public interests which the doctrine is intended to protect are so wide-ranging and diverse that opinions about what is harmful necessarily differ greatly according to the social and moral convictions, and sometimes even the political views, of different judges, rendering the doctrine a treacherous and unstable ground for legal decision, as noted in the case reported at (1921) 2 K.B. 351. The Court acknowledged that these questions had long troubled the courts, yet it observed that the present state of the law appeared reasonably clear.

The Court then articulated two observations with a reasonable degree of certainty. First, it held that although the rules already established by precedent must be moulded to accommodate the new conditions of a changing world, it was no longer legitimate for courts to create a fresh head of public policy. A judge, the Court explained, was not entitled to speculate about what, in his personal opinion, constituted the good of the community; instead, the judge had to be satisfied by applying, either directly or by analogy, the principles laid down in earlier decisions, and was required to expound, not expand, this particular branch of law.

Second, the Court observed that even when a contract prima facie fell under one of the recognized heads of public policy, it would not be declared illegal unless its harmful qualities were indisputable. Citing Lord Atkin’s remark in a leading case, the Court noted that the doctrine should be invoked only in clear situations where the public harm was substantially incontestable and did not rest on the idiosyncratic inferences of a few judicial minds, adding that, in popular language, the contract should be given the benefit of the doubt.

Supporting this view, the Court referred to Anson’s “Law of Contract”, which at page 216 reproduced a statement by Jessel, M.R., made in 1875, that the paramount public policy required courts not to interfere lightly with the freedom of contract. The Court explained that the difficulty in such cases arose from the task of reconciling freedom of contract with other public interests that were considered of equal importance. Nevertheless, the Court conceded that on certain subjects the policy of the law had been fashioned into a set of tolerably definite rules, and that the application of those rules to particular cases necessarily varied with the conditions of the times and the progressive development of public opinion and morality.

Finally, quoting Lord Wright, the Court affirmed that public policy, like any other branch of the common law, ought to be governed by the judicial use of precedents, and that although the rules of public policy must be moulded to suit new circumstances, such moulding was no different from the general evolution of common-law principles.

In this passage the Court explained that the doctrine of public policy, as set out in the third edition of Halsbury’s Laws of England, volume eight, declares that any agreement which is likely to be harmful to the public or contrary to the public good is void because it offends public policy. The Court observed, however, that this branch of law is not being expanded indiscriminately. The determination of what conflicts with public policy necessarily changes over time, and many transactions that would have been rejected in an earlier generation are now upheld because contemporary principles guide public opinion. Thus, although the rule that contracts contrary to public policy are void remains, its application varies with the prevailing ideas of the community.

The Court then referred to a number of leading cases that illustrate the limits of this elusive concept. Citing the judgment of Parke, B., in Egerton v. Brownlow (4 H.L.C. 1, 123; 10 E.R. 359, 408), the Court noted that the judge described public policy as a vague and unsatisfactory term that can lead to uncertainty and error when applied to legal rights. According to that judgment, public policy may be understood in different senses: in its ordinary sense it may mean political expediency or what is best for the common good of the community, and opinions on what constitutes the public good differ according to each person’s education, habits, talents and dispositions. The Court emphasized that allowing public policy to become a ground for judicial decision would create great uncertainty and confusion, because it is the province of the statesman, not the lawyer, to discuss what is best for the public, and it is the legislature that must determine the public good through proper enactments.

The Court further stressed that the judge’s role is limited to expounding the law as it exists in written statutes, in the unwritten common law derived from the decisions of predecessors and existing courts, and from the writings of acknowledged authorities, applying principles that can be clearly deduced by sound reason and just inference. Judges must not speculate on what they consider to be the best for the community. While some decisions have undoubtedly been based on prevailing notions of the public good—examples include the longstanding rule that covenants in restraint of marriage or trade are illegal—those rules have become part of recognized law and are therefore binding. However, judges are not empowered to create new law by declaring anything they personally deem to be for the public good, nor to prohibit any conduct they merely dislike. The Court cited the case of Janson v. Driefontein Consolidated Mines, Ltd. as an illustration of this principle.

In this case, an action had been instituted against British underwriters concerning an insurance policy that covered the loss of treasure if it were captured while being transported from a foreign state to Great Britain. The underwriters resisted the claim by arguing that the insurance was contrary to public policy. The House of Lords examined the argument and rejected the underwriters’ plea. In delivering his speech, the Earl of Halsbury, who was then a Lord of Appeal in Ordinary, made several weighty observations that the Court deemed worth extracting. At page 491 of the report, the learned Lord explained that scholars of law had, in various branches, analysed the sources of law and sometimes expressed the view that a particular provision was invalid because it conflicted with public policy. He denied, however, that any court possessed the power to create a new head of public policy. He stated that contracts for marriage brokerage, the creation of a perpetuity, agreements restraining trade, gaming or wagering contracts, and, in the present context, assistance to the King’s enemies, were unquestionably unlawful—not because they were deemed contrary to public policy, but because they had either been expressly prohibited by statute or had been declared unlawful by the common law. He emphasized that judges could not, by personal opinion, declare certain matters to be against public policy; rather, the principle of public policy had to be recognised by law before a court could apply it to invalidate a contract. The Earl further observed that, in applying these principles, it was inevitable that a judge would have to determine the facts of the particular case and decide whether those facts fell within a recognised public-policy principle that the contract allegedly infringed. These observations indicated that the doctrine of public policy was a branch of common law and that, unless a public-policy principle was already recognised by that law, a court could not use it to strike down an agreement. Lord Lindley, speaking at page 507, warned that public policy was an unstable and dangerous foundation on which to build legal rules until it was secured by judicial decision. He illustrated his point by referring to a promise made by one spouse, after a decree nisi for divorce had been pronounced, to marry a third person once the decree became absolute; such a promise was not void as being against public policy, as shown in Fender v. St. John-Mildmay. In that case, Lord Atkin discussed the scope of the doctrine at page 12, noting that, in popular language and following Sir George Jessel’s aphorism, a contract should be given the benefit of the doubt. Nevertheless, he affirmed the existence of the rule and explained that where a promise required the performance of an act that was harmful to public policy, or where the consideration for the promise involved performing or promising such a harmful act, a judge, though on uncertain ground, might still find a basis to apply the doctrine.

The Court observed that a person who proceeds on uncertain legal ground may nevertheless find some support, but the doctrine in question is not limited solely to acts that are harmful. It must also be applied to tendencies that are harmful. Consequently, the situation described is even more precarious and hazardous. Referring to Lord Halsbury’s observation in Janson v. Driefontein Consolidated Mines Ltd., the Court noted Lord Atkin’s comment on page eleven, which recorded that Lord Halsbury appeared to hold that the categories of public policy were closed, citing the authorities (1) (1938) A.C. 1 and (2) (1902) A.C. 484. According to that view, a public-policy principle could not be invoked anew unless the case fell within a principle already recognised by law. The Court, however, expressed doubt that this rigid view had the expressed agreement of the other members of the House and described it as overly strict. At the same time, the Court agreed that the view underlined an important warning: the doctrine of public policy should be invoked only in clear cases where the injury to the public is overwhelmingly evident and not based on the individual interpretations of a few judges.

Lord Thankerton’s summary, given on page twenty-three, emphasized that the proper role of the Courts in matters of public policy is to explain, not to enlarge, that policy. He clarified that this does not prevent the Courts from applying an existing public-policy principle to new facts, provided those facts fall clearly within the established scope of the principle. He added that such a situation might arise, for example, where the safety of the State is at issue, although no such circumstance was presented in the present case. He also warned that the Courts must remain vigilant not to let their personal views of what public policy should be, or where its limits lie, influence their decisions. Lord Wright, on page thirty-eight, explained that the term “public policy” is used in two senses. In a broad sense, every rule of law—whether from common law or equity—originates from considerations of public interest, embodying the fundamental policy that parties should honour their contracts, as noted by Sir George Jessel, M.R. In a narrower sense, public policy comprises specific public-interest considerations that may require a Court to depart from its ordinary duty of enforcing contracts and, in exceptional cases, refuse to enforce them. Lord Wright then set out the principles governing this exceptional jurisdiction: (1) public policy is not a branch of law that can be expanded at will; (2) judges may only interpret and expound the existing law; and (3) the application of public-policy principles follows the same logical and analogical methods used for other common-law rules.

The Court explained that public policy, like any other branch of the common law, is governed by the judicial use of precedents, and that courts apply recognised principles to new situations by analogy, logic and convenience in the same way they deal with any other rule of common law. Relying on the discussion of case law, the learned Lord observed at page 40 that although some rules of public policy must be moulded to suit the conditions of a changing world, this requirement is no different from the way the principles of common law generally adapt, and he expressed doubt that a completely new head of public policy could be discovered in the present day. The observations of the aforesaid Law Lords therefore define the concept of public policy and delineate the limits of its application in modern times. In short, they state that the rules of public policy are well-settled and that the function of the courts is limited to expounding those rules and applying them to varying factual circumstances. While Lord Atkin did not accept Lord Halsbury’s dictum that the categories of public policy are closed, he warned that the doctrine should be invoked only in clear cases where the harm to the public is substantially incontestable. Lord Thankerton and Lord Wright appear to suggest that the categories of public policy are well-settled and that, at most, courts can apply the existing categories to new sets of circumstances. Neither of them ruled out the possibility of evolving a new branch of public policy in a changing world, but they could not conceive, under the existing circumstances, that any such new head could be discovered. Asquith, L. J., in Monkland v. Jack Barclay Ltd. restated the law crisply at page 723, quoting the authority (1951) 1 All E.R. 714, that the courts have repeatedly held that where a contract does not fit into one of the established “pigeon-holes” but lies outside that protected circle, the courts should exercise extreme reserve in holding the contract void as against public policy, and should do so only when the contract is incontestably and, in any view, inimical to the public interest. Indian case law adopts the same view. A division bench of the Bombay High Court, in Shrinivas Das Lakshminarayan v. Ram Chandra Ramrattandas, observed at page 20 that it is open to the court to hold that the consideration or object of an agreement is unlawful on the ground that it is opposed to what the court regards as public policy, a ground laid down in section 23 of the Indian Contract Act. However, the court noted that, as affirmed by Lord Halsbury in Janson v. Driefontein Consolidated Mines, Limited (1902 A.C. 484 at page 491), a court cannot invent a new head of public policy.

The Court observed that, although public policy is a concept sometimes invoked to declare a contract void, the statement of Lord Davey in the same case – that “public policy is always an unsafe and treacherous ground for legal decision” – should be treated as a prudent warning when assessing the reasons offered by a learned judge for a particular ruling. This cautious approach was reaffirmed by later decisions, specifically in Bhagwant Genuji Girme v. Gangabisan Ramgopal and Gopi Tihadi v. Gokhei Panda, where the same view was echoed.

The doctrine of public policy may be described in the following way. Public policy, or the policy of the law, is a vague and elusive notion that has been variously termed an “untrustworthy guide,” a “variable quality,” an “uncertain one,” and even an “unruly horse.” The fundamental responsibility of a court is to enforce the promises made by parties and to protect the sanctity of contracts, which form the foundation of society. Nevertheless, in certain circumstances the court may excuse itself from enforcing a promise on the basis of a rule identified as public policy. Lord Atkin explained that any act contrary to public policy is harmful, and the doctrine has been extended not only to overtly harmful acts but also to harmful tendencies. This doctrine constitutes only one branch of the common law, and, like every other branch, it is governed by precedent. The principles underlying public policy have been organized under various headings, and while courts may interpret and apply these principles to new situations, the doctrine should be invoked only in cases that are clear and indisputable as being detrimental to the public interest. Although the existing heads are not closed and, in theory, a new head could be recognised in exceptional circumstances brought about by a changing world, the Court advised that, for the sake of societal stability, it is better not to attempt to create new heads at the present time.

The discussion then turned to the question of whether a definitive principle of public policy had ever been established in either England or India that would render wagering contracts invalid. Regarding England, the passages quoted from textbooks and the case law examined earlier demonstrate unequivocally that no such rule of public policy existed. English common-law courts, up to the year 1845, enforced wagering contracts even when the parties to the transaction were directly involved, and they held that wagers were not illegal. The situation changed after the enactment of the English Gaming Act, 1845 (8 & 9 Vict. c. 109), which declared wagering contracts void. Nonetheless, the courts continued to hold that although a wagering contract was void, it was not illegal, and therefore any agreement that was collateral to the wagering contract could still be enforced. It was not until the later Gaming Act of 1892 (55 Vict. c. 9) that collateral agreements were also rendered unenforceable, the Act expressly providing for that consequence. The Court noted that several of the decisions cited earlier illustrate this evolution of the law.

In this case, the Court noted that the question of public policy had been expressly raised and rejected by English courts in decisions such as Thacker v. Hardy (1); Hyams v. Stuart King (2); and Michael Jeffrey & Company v. Bamford (3). Consequently, it was clear that English common law never embraced a public-policy rule that rendered wagering contracts illegal. The Court further observed that the same legal position applied in India. Indian courts, both before and after the enactment of the 1848 Act and later the Contract Act, have consistently held that wagering contracts are not illegal and that any collateral contract connected with such wagers is enforceable. The Court mentioned that these authorities had already been discussed in relation to the first point and therefore did not repeat the full analysis, except for a passage from the Judicial Committee’s decision in Ramloll Thackoorseydass v. Soojumnull Dhondmull (1). In that judgment, the judges considered whether the doctrine of public policy could be applied to a wagering contract and stated at page 350: “We are of opinion, that, although, to a certain degree, it might create a temptation to do what was wrong, we are not to presume that the parties would commit a crime; and as it did not interfere with the performance of any duty, and as if the parties were not induced by it to commit a crime, neither the interests of individuals or of the Government could be affected by it, we cannot say that it is contrary to public policy.” The Court pointed out that since that 1848 decision, no subsequent case, up to the present time, has declared wagering contracts illegal or has refused to enforce a collateral contract on the basis of public policy. Accordingly, the Court concluded that the English common-law view on wagers had been adopted in India and that, although contracts of wagering became void after the 1848 Act, they were never regarded as illegal. The Court also noted that, apart from the State of Bombay, no Indian legislature attempted to align its law with the English Gaming Act of 1892. The Contract Act of 1872 was enacted while a central statute, Act 21 of 1848, based largely on the English Gaming Act of 1845, was in force, and the Bombay Wagers (Amendment) Act of 1865 had already modified that central act in a manner similar to the later English legislation. Although the Contract Act repealed the 1848 Act, it did not incorporate the Bombay amendment provisions, nor was any further amendment made after the English Gaming Act of 1892.

The Court observed that the legislature could be said to have been aware of the position of English law on wagering and, accordingly, it could be inferred that the legislature did not consider it appropriate to declare wagers illegal or to attack collateral contracts. Consequently, the prevailing legal policy in India had been to uphold the legality of wagers. The historical development of gambling law in India demonstrated that, although certain aspects of gaming were regulated, gambling had never been subjected to an absolute prohibition. The Court listed several statutes that regulated gambling in India, namely the Public Gambling Act of 1867, the Bengal Public Gambling Act of 1867, the Bombay Prevention of Gambling Act of 1887, the Madhya Bharat Gambling Act of 1949, the Madhya Pradesh Public Gambling Act, the Madras Gaming Act of 1930, the Orissa Prevention of Gambling Act of 1955, the Punjab Public Gambling Act of 1867, the Rajasthan Public Gambling Ordinance of 1949, and the Uttar Pradesh Public Gambling Act. These enactments did not ban gaming in its entirety; rather, they aimed to suppress gaming conducted in private residences when such activities were carried on for profit or for the benefit of the owner or occupier, and they also targeted gaming in public places. The Court explained that gaming which did not breach the provisions of these statutes remained lawful. Whenever the State intended to make a specific form of gaming illegal, it enacted an express statute to that effect, for example Section 29-A of the Indian Penal Code. Apart from such expressly prohibited forms, gaming and wagering were permissible throughout India. The Court further noted that horse racing was widely permitted across the country and that the State derived revenue from such events. The appellant’s counsel then raised the issue of whether, under Hindu law, gambling contracts could be considered illegal. The counsel relied on observations made by this Court in the case of State of Bombay v. R. M. D. Chamarbaugwala, where the fundamental question concerned the constitutional validity of the Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act of 1952 as it extended the definition of “prize competition” to include competitions run through newspapers printed outside the State. The respondents contended that the Act infringed their fundamental right under Article 19(1)(g) of the Constitution and violated the freedom of inter-State trade under Article 301. This Court held that gambling activities, by their very nature, were extra commercium and could not be characterized as trade or commerce within the meaning of those constitutional provisions; therefore, neither the right under Article 19(1)(g) nor the right to inter-State trade under Article 301 was violated. In that context, Chief Justice Das had examined Hindu law sources such as the Rig Veda and the Mahabharata.

The Court referred to Hindu scriptures such as Manu, Brihaspati and Yagnavalkya, which at pages nine hundred twenty-two to nine hundred twenty-three condemn gambling in explicit terms. It observed that the essential question was whether those ancient writings continue merely as pious wishes of ancestors or whether they have been given force in recent centuries. The Court noted that not all branches of Hindu law have been administered by Indian courts. Traditionally only questions of succession, inheritance, marriage and religious usages are decided according to Hindu law, except where legislation has altered those rules. The Court added that beyond those matters, the Hindu law is applied to Hindus in certain additional fields, sometimes because of express statutes and sometimes on the basis of justice, equity and good conscience. Those additional fields include adoption, guardianship, family relations, wills, gifts and partition. The Court said that even in these areas Hindu law operates subject to legislative modifications, referring to Mulla’s Hindu Law paragraph three page two. The Court concluded that, apart from the matters mentioned, the ancient Hindu law was not enforced by Indian courts and has effectively become obsolete.

The Court observed that no reported case has ever held gambling or wagering contracts illegal on the ground that they offend public policy derived from ancient Hindu law. Consequently, the Court found it difficult to import Hindu law tenets to create a new public-policy exception for gaming and wagering agreements. The Court summarized that both English common law and Indian law have never invalidated wager contracts on public-policy grounds; such contracts have traditionally been considered enforceable even when statutes declared them void. After English wager contracts were declared void, collateral contracts continued to be enforced until the Gambling Act of 1892, the Court said. In India, except for the State of Bombay, wager contracts were enforced even after the 1848 Act, which was later replaced by section thirty of the Contract Act. The Court noted that moral prohibitions against gambling found in Hindu texts were never given legal effect and have fallen into desuetude. The Court explained that although gambling is regulated in certain specific contexts, there is no law that declares wagering per se illegal, and some forms of gambling provide a steady revenue source for the State. In view of these facts, the Court held that no established head of public policy exists, either through precedent or judicial doctrine, that would directly render wagering contracts illegal. Even assuming that courts might fashion a novel public-policy principle in extraordinary situations causing incontrovertible harm to society, the Court concluded that wagering does not represent such an exceptional case.

In this case, the Court observed that although society may consider certain matters to be of exceptional gravity that would justify the creation of a new public-policy rule, wagering does not fall within that category because it has been known for centuries and has been tolerated both by the public and by the State. Accordingly, the Court held that if wager were to be prohibited, that power lies with the legislature, which may enact a statute declaring such contracts illegal, rather than with the judiciary which should not resort to judicial legislation. Regarding the third ground of immorality raised by the appellant’s counsel, the Court noted that the argument was presented in a very broad manner. The counsel attempted to draw an analogy with the Hindu law principle that obliges a son to discharge his father’s debts and argued that the immorality recognised in that context could be imported to a case under section 23 of the Contract Act. The Court found that no authority was cited and no legal basis was indicated for importing a Hindu-law doctrine into the field of contract law. Section 23 of the Contract Act, being derived from English common law, would be more appropriately analysed by reference to English law rather than to Hindu-law texts that address a different subject matter. The Court quoted Anson’s Law of Contracts, page 222, which states that the only form of immorality that courts have dealt with is sexual immorality. Similarly, Halsbury’s Laws of England, third edition, volume ?, page 138, observes that a contract made on an immoral consideration or for an immoral purpose is unenforceable and that there is no distinction between immoral and illegal contracts, with the immorality referred to being sexual immorality. The Court also cited Cheshire and Fifoot’s Law of Contract, third edition, page 279, which notes that although Lord Mansfield declared a contract contrary to “bonos mores” to be illegal, the law in this area does not give an expansive meaning to morality but confines itself to what is sexually reprehensible. In the Indian commentary by Pollock and Mulla on the Contract Act, page 157, the word “immoral” is explained as referring to conduct or purposes that the State, though disapproving, is either unable or not advised to punish directly. The learned authors therefore limited the operation of the term to acts considered immoral by the standards approved by the courts. Judicial precedent in both England and India likewise restricts the doctrine to sexual immorality. The Court listed several illustrative instances where contracts have been held void on the ground of immorality: settlements made in consideration of encubinage, contracts for the sale or hire of goods to be used in a brothel or by a prostitute for purposes related to her profession, agreements to pay money for future illicit cohabitation, promises concerning marriage for consideration, and contracts facilitating divorce are all declared void because their objects are immoral. The Court concluded that while the word “immoral” is broad and can ordinarily encompass many aspects of personal conduct that deviate from societal norms, its legal application under section 23 is limited, as reflected by the authorities and case law cited.

The Court explained that the term “immoral” described conduct that differed from the ordinary standards of personal behavior accepted by society. It further noted that conduct considered repugnant to good conscience could also be labeled immoral. The Court observed that what was regarded as immoral varied according to the time, place and level of civilizational development of a particular community, and therefore no single universal definition could be imposed. Consequently, any law that rested on such a fluid concept would defeat its own purpose. The Court pointed out that section 23 of the Contract Act was intended to give the word a narrow meaning, and that its placement alongside the equally elusive concept of public policy indicated that the legislature meant it to be applied in a restricted manner; otherwise the two concepts would overlap. In a broad sense, the Court said, immoral conduct might be contrary to public policy, because public policy covered political, social and economic grounds of objection. However, the Court observed that decisions of courts and the writings of respected textbook authors confined the doctrine of immorality strictly to sexual immorality. The Court added that the statutory limitation, expressed as “the court regards it as immoral,” showed that the doctrine was a branch of common law similar to the doctrine of public policy, and therefore should be limited to principles already recognized and settled by the courts. The Court noted that precedents restricted the concept solely to sexual immorality and that no case was known to the Court where it had been applied to any matter other than sexual immorality. Accordingly, the Court held that it could not create a new category to bring wagers within the scope of immorality. The Court then turned to the argument raised by counsel for the appellant that a wager was extra-commercium and that, under section 4 of the Partnership Act, there could be no partnership for wagering because that section required a relationship among persons who agreed to share the profits of a business. The appellant relied on the decision of this Court in The State of Bombay v. R. M. D. Chamarbaugwala. The Court observed that this issue had not been raised in the pleadings, no issue had been framed on it, and it had not been argued before the learned Subordinate Judge or the High Court. Moreover, the point had not been mentioned in the application for a certificate of leave to appeal filed in the High Court. The learned advocate for the appellant in the High Court had stated that the appellant intended to raise only one question, namely whether the partnership formed to carry on a business in differences was illegal within the meaning of section 23 of the Contract Act. This plea had also not been disclosed in the statement of case filed by the appellant in this Court. The Court reasoned that, had the contention been raised at the earliest stage, the respondents would have been entitled to seek an appropriate amendment of the plaint to protect their claim. In view of these circumstances, the Court concluded that it could not, with justification, allow the appellant to introduce this new plea for the first time before it, as doing so would cause irreparable prejudice to the respondents.

The Court observed that allowing the appellant to introduce this new pleading at this late stage would create irreparable prejudice to the respondents, and therefore the appellant could not be permitted to raise the plea for the first time before this Court. The Court expressly stated that it would not express any view on the merits of that particular point, because the procedural considerations barred its consideration. Having examined the material presented and the reasons discussed earlier, the Court concluded that the partnership which formed the subject of the suit was not illegal within the meaning of section 23 of the Indian Contract Act. Consequently, the Court held that the appellant’s claim failed and that the appeal could not succeed. Accordingly, the appeal was dismissed and the appellant was ordered to pay the costs of the proceedings. The final order recorded by the Court therefore read as follows: the appeal is dismissed. (1) [1957] S.C.R. 874.