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Appeal No. 82 of 1957, decided on 28th February 1958.
Promissory note executed in Calcutta‑Repayment to be made at Galachipa in Pakistan‑Transaction contrary to law ---Not enforceable in Pakistan Courts.
The parties, while entering into the transaction by way of a promissory note in Calcutta contracted to make payment in Pakistan, in Pakistan currency although the consideration was paid in Calcutta in Indian currency.
that the transaction ways contrary to the provisions of sections 4 and 5, Foreign Exchange Regulation Act (VII of 1947) and, if permitted, would result in an evasion or avoidance of such provisions within the meaning of section 21 (1) of the said Act. The transaction could not be enforced in Pakistan Courts I though the dispute may be entertainable by such Courts.
B. C. Das with B. C: Pandey for Appellant.
R. R. Guha with D. C. Bhattacharjee for Respondent.
This appeal arises out of a suit for recovery of the sum of Rs. 3,600 due under a promissory note executed by defendant No. 1 in favour of the plaintiff on 2nd Aswin, 1358 B. S.
2. The plaintiff's case in brief is that he has his business at Galachipa Bandar in the district of Barisal and also at Nabadwip in West Bengal. The defendants also have joint running business concerns styled as "Matilal Benimadhab Pat" at Calcutta, Jhalakati and Galachipa Bandar. Defendants Nos. 2 to 6 as heirs of Matilal Pal are the present owners of the firms along with defendant No. 1 who as Karta of their joint business took a loan of Rs. 3,000 from the plaintiff by executing a promissory note on 2nd Aswin, 1358. B. S., at Barra Bazar in Calcutta for the purpose‑ of their joint business. It was agreed that the principal along with interest would be paid at Galachipa in the district of Barisal. The plaintiff has claimed Rs. 600 by way of interest besides the principal amount of Rs. 3,000. The amount having been invested for their joint business, all the defendants are jointly liable for the same.
3. Two sets of written statements have been filed in the suit, one by defendant No. 1 and another by defendants Nos. 2 to 6. Defendant No. 1 has raised the question of jurisdiction of the Court and contends that though he executed the promissory note and received payment of Rs. 3,000 yet the amount was not spent for the joint business of the defendants at Galachipa or Jhalakati. The loan was taken for his son's business at Calcutta with a stipulation for payment in Indian currency. The debt has been satisfied out of various transactions with defendant No. 1's son in relation to the business of the plaintiff at Nabadwip and nothing remains due under the pro‑note. The alleged story of contract for payment in Pakistan currency at Galachipa is against public policy. Defendants Nos. 2 to 6 have also raised objection about jurisdiction and contend inter alia that the loan in question was not taken by them or for their benefit. Defendant No. 1 had no right as Karta or otherwise to borrow on their behalf and nothing was spent out of that loan for their joint business at Galachipa or Jhalakati.
4. The trial Court held that the Court had jurisdiction to try the suit but disbelieved the plaintiff's story that the loan was taken for conducting the joint business of all the defendants. It was held that defendants Nos. 2 to 6 who were citizens of Bharat were not responsible for the loan incurred by defendant No. 1. The suit was accordingly dismissed against defendants Nos. 1 to 6. So far as defendant No. 1 was concerned, it was found that the evidence on record supported an agreement for payment in Pakistan currency. It was, however, held that the agreement for payment of an equal amount in Pakistan currency at Galachipa was by itself illegal as being in violation of the exchange laws of this country and, as such, opposed to public policy. The suit was, therefore, dismissed against him as well.
5. On an appeal preferred by the plaintiff, the findings of the learned Munsif in so far it was found that defendants Nos. 2 to 6 were not liable for the money were not challenged. But it was contended that the law as regards foreign exchange control had been misconceived and that there was no bar in decreeing the suit against defendant No. 1.
6. The learned Subordinate Judge held that the Court was fully competent to entertain the dispute between the parties and that the plaintiff should recover corresponding Pakistan equivalent of the money lent in India on the date of the transaction. The plaintiff's suit was decreed in part with proportionate costs against defendant No. I for a sum of Rs. 2,085 plus interest at the rate of 6% per annum for the period claimed and dismissed against defendants Nos. 2 to 6. The appeal was allowed in part on contest with proportionate costs against defendant No. 1 and dismissed without costs against others. Hence the present Second Appeal at the instance of defendant No. 1 and a cross‑objection by the plaintiff‑respondent for the sum of Rs. 915, being the difference in the original claim of Rs. 3,000 and the sum of Rs. 2,085 as decreed in his favour.
7. Mr. Das appearing on behalf of defendant No. 1 appellant contends that the learned Subordinate Judge, having found that Foreign Exchange Regulation Act VII of 1947 was in force when the promissory note, Exh. 1, was transacted between the parties, erred in law in giving a decree in favour of the plaintiff in contravention of the provisions of the said Act. Mr. Guha appearing on behalf of the plaintiff respondent, on the other hand, submits that the present case does not come within the mischief of any of the provisions 'of that Act. He refers to the preamble and section 4 (2) of the Act and contends that on a proper construction thereof it will appear that what is pro hibited is conversion at a rate of exchange not authorised by the State Bank and not a transaction which provides for conversion at the authorised rate. According to him, the decree as passed by the learned Subordinate Judge for, a sum of Rs. 2,085 only does not offend against section 4 (2) or any other provision of the Act.
8. For a proper appreciation of the matter in dispute we have to examine some of the relevant provisions of the Foreign Exchange Regulation Act VII of 1947, as adapted in Pakistan.
The preamble states as follows :‑
"Whereas it is expedient in the economic and financial interests of Pakistan to provide for the regulation of certain payments, dealings in foreign exchange and securities, and the import and export of currency and bullion".
Subsections (1) and (2) of section 4 are as follows :‑
"(1) Except with the previous general or special permission of the State Bank, no ‑ person other than an authorised dealer shall in the Provinces and the Capital of the Federation, and no person resident in the Provinces and the Capital of the Federation other than an authorised dealer shall outside the Provinces and the Capital of the Federation, buy or borrow from, or sell or lend to, or exchange with, any person not being an authorised dealer, any foreign exchange".
(2) Except with the previous general or special permission of the State Bank, no person whether an authorised dealer or otherwise shall enter into any transaction which provides for the conversion of Pakistan currency into foreign currency or foreign currency into Pakistan currency at rates of exchange other than the rates for the time being authorised by the State Bank".
Subsection (1) of section 21 is as follows :‑
"No person shall enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or of any rule, direction or order made thereunder".
It appears that the parties, namely, the plaintiff and defendant No. 1, who are admittedly resident in Pakistan and not authorised dealers as defined in section 2 (a), will come within the mischief of section 4 if the transaction as per Exh. 1 is hit by the provisions thereof. The preamble of the Act makes it clear that the intention of the Legislature amongst other things was to regulate certain payments and dealings in foreign exchange. In this connection, we may also set out clauses (a), (b), (c) and (d) of section 2 defining authorised dealer, currency, foreign currency and foreign exchange. They are as follows :‑‑
"(a) authorised dealer' means a person for the time being authorised under section 3 to deal in foreign exchange
(b) currency' includes all coins, currency notes, bank notes, postal notes, money orders, cheques, drafts, traveller's cheques, letters of credit, bills of exchange and promissory notes ;
(c) foreign currency' means any currency other than (Pakistan) currency ;
(d) foreign exchange' means foreign currency and includes any instrument drawn, accepted, made, or issued under sub clause (6‑a) of clause 13 of the State Bank of Pakistan order, 1948, all deposits, credits and balances payable in any foreign currency and any drafts, traveller's cheques, letters of credit and bills of exchange, expressed or drawn in Pakistan currency but payable in any foreign currency".
"Foreign exchange" has been defined to mean foreign currency and to include certain other things and "foreign currency" has been defined under section 2 (c) to mean any currency other than Pakistan currency. The parties, while enter ing into the transaction by way of a promissory note in Calcutta as alleged by the plaintiff, contracted to make payment in Pakistan in Pakistan currency although the consideration was paid in Calcutta in Indian currency. If such a contract had been honoured then instead of Indian rupees paid in Calcutta the plaintiff would receive and the defendant would pay in terms of Pakistan currency at Galachipa in the district of Barisal. This would, in our opinion, surely amount to a dealing in foreign currency at the instance of two private individuals. The plaintiff lent Rs. 3,000 in Indian currency to defendant No. 1 at Calcutta ; i.e., outside the Provinces and the Capital of the Federation on condition that it would be paid back or exchanged for an equivalent sum in Pakistan currency at Galachipa in the district of Barisal. This kind of transaction, being without any previous general or special permission of the State Bank, and the parties being not authorised dealers, was not permissible under section 4 (1) which provides that no person resident in Pakistan other than an authorised dealer shall lend any foreign exchange outside Pakistan to any person not being an authorised dealer. Apart from the prohibition in section 4 (1) against this kind of transaction, it also appears that there being no previous general or special permission of the State Bank, the effect of a deal like this would amount to a con version of foreign currency into Pakistan currency by an indirect process contrary to the terms of section 4 (2) and section 21 (1) of the Act. Provision has been made in section 3 for the authorisation of certain persons to deal in all foreign currencies and in other like matters. The scheme of the Act does not appear to have left transactions like the present one outside the ambit or operation thereof. So far as the plaintiff was concerned, he acted by entering into a deal of this nature contrary to the terms of section 4 (1) and (2). On a reference to section 5 (1) (e) read with sub‑clause (f) it will also appear that defendant No. 1 was not permitted to make any payment to any person as con sideration for the receipt of a payment outside Pakistan or to draw or issue a promissory note or acknowledge any debt, so that a right to receive a payment might be created in favour of any person on such ground. Both the parties were thus pro hibited to enter into a deal or transaction as per Exh. 1 if the plaintiff's allegation that there was a stipulation for repayment at Galachipa was to be accepted as true. According to defendant No. 1 there was no such stipulation and, even if it appeared to be so, that was not enforceable being contrary to the provisions of the said Act. The learned Munsif has found in favour of a stipulation like that but, in view of the provisions of the said Act, has refused to give a decree in favour of the plaintiff. The learned Subordinate Judge has, however, found that there is no legal bar why the plaintiff would not be entitled to enforce Exh. I in the Court which is otherwise fully competent to entertain the dispute between the parties.
10. Mr. Guha has also argued that there being already a decree in his client's favour, the provisions of the said Act, in view of section 21 (3), should not be understood to prevent legal proceedings being brought in Pakistan to recover the decretal amount. This seems to be a curious argument. The decree as passed by the learned Subordinate Judge is subject to the decision of this Court in the appeal " pending before us. As such, whatever decree seems to have been passed will merge in the decree of this Court. It cannot, therefore, be said that the plaintiff's decree is no longer liable to be revised, modified or set aside or that it is final and complete for the purpose of execution.
11. As we have found that the transaction in question as per Exh. 1, in view of the plaintiff's allegation that repayment of the loan was to be made in Pakistan, was contrary to the provisions of sections 4 and 5 and, if permitted, it would result in an evasion or avoidance of such provisions within the meaning of section 21 (1) of the said Act, we cannot agree with the view taken by the learned Subordinate Judge. It is not disputed b e Mr. Guha that if the contract as set up by the plaintiff appeared to have contravened or been in any way contrary to the pro visions of the Foreign Exchange Regulation Act VII of 1947, it cannot be enforced in a Court of law although it might be competent to .try the dispute in question. We are, therefore, of the opinion that the view as taken by the learned Munsif is a correct one and that it should prevail in the facts and circum stances of the present case. The contention of Mr. Guha that the decree as passed by the learned Subordinate Judge should be upheld must, therefore, fail.
12. In the result, this appeal succeeds and is allowed with costs. The judgment and decree of the lower Appellate Court are set aside and those of the trial Court restored. The cross objection as preferred by the plaintiff‑respondent is dismissed without any order as to costs.
AMIN AHMED, C. J.‑I agree.
A. H.
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