Gherulal Parakh v. Mahadeodas Maiya
Supreme Court of India · 26 March 1959 · 3 judges · 1959 AIR 781; 1959 SCR Supl. (2) 406
A partnership formed to carry on wagering transactions is not unlawful under Section 23 of the Contract Act, because a wager, though void under Section 30, is not forbidden by law, opposed to public policy or immoral.
Facts
The appellant and the first respondent, managers of two joint Hindu families, entered into a partnership to carry on wagering contracts with two firms of Hapur, agreeing that the respondent would contract in his own name for the partnership and that profit and loss would be shared equally. The transactions ended in loss, which the respondent paid to the Hapur merchants. When the appellant denied liability for his half share, the respondent sued for it at Darjeeling. The Subordinate Judge dismissed the suit, holding the agreement void as forbidden by law and opposed to public policy. The Calcutta High Court held that, though the transactions were wagers void under Section 30, the object of the partnership was not unlawful under Section 23, and decreed part of the claim. The appellant appealed.
Questions before the Court
- Is a partnership agreement whose object is to carry on wagering transactions unlawful under Section 23 of the Indian Contract Act as forbidden by law?
- Is such an agreement opposed to public policy?
- Is such an agreement immoral within the meaning of Section 23?
What the Court held
- Under Section 30 of the Contract Act a wager is void and unenforceable but not forbidden by law. What is void cannot be equated with what is forbidden by law, so the object of an agreement collateral to a wager is not unlawful under Section 23, and a partnership to carry on wagering transactions is not unlawful.
- Public policy is governed by precedent and should be invoked only in clear cases of incontestable harm to the public. Neither English nor Indian law ever recognised a head of public policy making wagers illegal, and Hindu texts condemning gambling were not enforced; any prohibition is for the legislature.
- 'Immoral' in Section 23 has a restricted meaning which precedents confine to sexual immorality. The Court declined to evolve a new head to bring wagers within it.
- The partnership, formed for contracts with specified persons for one season, was dissolved on their completion under Section 42 of the Partnership Act. The new plea that wagering is not a business was not allowed, and the appeal was dismissed with costs.
Why it matters
The judgment settles that a wagering agreement is void but not illegal in India, so that collateral agreements such as a partnership to carry on wagers can be enforced. It also gives a careful account of the doctrine of public policy under Section 23, warning against creating new heads, and confines the word 'immoral' in that section to sexual immorality as recognised by precedent.
In the Court's words
Copied from the official judgment; each passage links to its page.
“(5) s. 30 of the Indian Contract Act is based upon the provisions of s. 18 of the Gaming Act, 1845, and though a wager is void and unenforceable, it is not forbidden by law and therefore the object of a collateral agreement is not unlawful under s. 23 of the Contract Act; and (6) partnership being an agreement within the meaning of s. 23 of the Indian Contract Act, it is not unlawful, though its object is to carry on wagering transactions.”
“though it is permissible for Courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days.”
“Even if it is permissible for Courts to evolve a new head of public policy under extraordinary circumstances giving rise to incontestable harm to the society, we cannot say that wager is one of such instances of exceptional gravity, for it has been recognized for centuries and has been tolerated by the public and the State alike. If it has any such tendency, it is for the legislature to make a law prohibiting such contracts and declaring them illegal and not for this Court to resort to judicial legislation.”
“Precedents confine the said concept only to sexual immorality and no case has been brought to our notice where it has been applied to any head other than sexual immorality. In the circumstances, we cannot evolve a new head so as to bring in wagers within its fold.”
Provisions interpreted
Case and bench
- Parties
- Gherulal Parakh v. Mahadeodas Maiya
- Case
- Civil Appeal No. 215 of 1955
- Decided
- 26 March 1959
- Bench
- Subbarao, K., Imam, Syed Jaffer, Sarkar, A.K.
- Opinions
- Unanimous. Judgment of the Court delivered by Subba Rao, J.
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