1974 (12) TMI 78 - SC - Indian Laws

Supreme Court: Contracts Illegal for Speculation, Against Public Policy

The Supreme Court dismissed the appeals, finding the contracts illegal due to speculation without actual delivery, violating provisions of the Forward ... - Issues Involved:1. Legality of the contracts under Section 23 of the Contract Act.2. Nature of the contracts as wagering contracts.3. Applicability of public policy in determining the legality of the contracts.4. Compliance with the Bombay Forward Contracts Control Act and the Oilseeds (Forward Contract Prohibition) Order, 1943.5. Right to indemnification under Section 222 of the Contract Act.Issue-wise Detailed Analysis:1. Legality of the Contracts under Section 23 of the Contract Act:The Supreme Court examined whether the contracts set up by the plaintiff-appellant were struck by the provisions of Section 23 of the Contract Act. Section 23 states that the consideration or object of an agreement is lawful unless it is forbidden by law, defeats the provisions of any law, is fraudulent, involves injury to the person or property of another, or is regarded as immoral or opposed to public policy. The Court found that the contracts involved speculation in the rise and fall of prices of goods purchased notionally without any intention of actual delivery, which could be considered as contracts for speculation rather than for actual delivery.2. Nature of the Contracts as Wagering Contracts:The Court found considerable force in the plaintiff's contention that the contracts between the plaintiffs and defendants were not wagering contracts, although both parties knew their object was to indulge in speculation. It was held that in a wagering contract, there has to be mutuality in the sense that the gain of one party would be the loss of the other on the happening of the uncertain event. The Court accepted the appellant's contention that there was no wagering contract between the plaintiff and any of the defendants.3. Applicability of Public Policy in Determining the Legality of the Contracts:The Court considered whether the contracts were against public policy. It was noted that public policy is a comprehensive concept and should be measured considering the political, social, and economic policies of a welfare state. The Court concluded that if an agreement is merely collateral to another or constitutes an aid facilitating the carrying out of the object of the other agreement, which is void but not prohibited, it may be enforced as a collateral agreement. However, if it is part of a mechanism meant to defeat what the law has prohibited, it will be tainted with illegality.4. Compliance with the Bombay Forward Contracts Control Act and the Oilseeds (Forward Contract Prohibition) Order, 1943:The Court examined whether the contracts violated the provisions of the Bombay Forward Contracts Control Act and the Oilseeds (Forward Contract Prohibition) Order, 1943. The Andhra Pradesh High Court had held that the forward contracts under consideration violated these provisions. The Supreme Court agreed, noting that the contracts were not shown to be exempt from the prohibition under the Essential Supplies Act and the Control Order of 1943. The contracts were found to be for speculation and not for actual delivery, thus violating the provisions aimed at controlling forward contracts in essential commodities.5. Right to Indemnification under Section 222 of the Contract Act:The plaintiff claimed amounts due to indemnify him under Section 222 of the Contract Act for payments made to third parties on behalf of the defendants. The Court held that a claim for indemnification under Section 222 is only maintainable if the acts the agent is employed to do are lawful. Since the contracts were found to be illegal and prohibited by law, the plaintiff was not entitled to indemnification. The Court also noted that agreements to commit criminal acts are expressly excluded from the scope of any right to an indemnity under Section 224 of the Contract Act.Conclusion:The Supreme Court dismissed the appeals on merits, holding that the contracts were illegal and their objects forbidden by law. However, the decrees for costs awarded to the defendants were set aside, and it was directed that the parties will bear their own costs throughout. The appeals were dismissed subject to this modification of decrees for costs.