Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Suit No. 129 of 1960, decided on 12th October 1962.
‑Provisions of Statute and Rules framed thereunder prohibiting transfer of licence granted under statute‑Transaction involving transfer of licence or creation of interest therein‑Void‑Condition attached to licence granted under Imports and Exports (Control) Act (XXXIX of 1950) and Imports and Exports Licence (Conditions of Issue) Order, 1949 Agreement in violation of such condition void .and un‑enforceable.
Where there is a prevision in the statute or rules framed thereunder prohibiting transfer of a licence, lease or contract granted under the statute, a transaction involving such transfer would be void under section 23 of the Contract Act, 1872.
The control and restrictions contained in the provisions of the Imports and Exports (Control) Act, 1950 and the imports and Exports Licence (Conditions of .Issue) Order, 1949 are not designed for the protection of the revenue but are based upon much larger considerations which affect the economy of the country with which public interest is intimately concerned. The Act is primarily designed to control, restrict and regulate imports and exports on the grounds of public policy and the Imports and Exports Licence (Conditions. of Issue) Order, 1949 makes it obligatory for the licensing authority to issue the licence subject to the condition of its non‑transferability without the permission of the said authority. Where, therefore, a transaction involves the transfer without permission of licences, granted under the Imports and Exports (Control) Act, 1950, the agreement would be clearly in violation of the condition attached to the licence and would be void and unenforceable.
Even if the main object of statute is the protection and collection of revenue but the statute itself or the rules framed thereunder forbid the doing of a thing and provide a penalty for a contravention, an agreement calculated to defeat such a provision would still be void.
Nazaralli Sayed Imam v. Babamiya Dureyatimsha I L L 1940 Bom. 64 ; Bhikanbhai v. Hiralal I L R 1924 Born. 622 ; Bhagvant Genuji Girme v. Gangabisan Ramgopal A I R 1940 Born. 369 and Abdullah v. Mamod I L R 1926 Mad. 156 distinguished.
Gopalrav Hanmant v. Kallappa I L R 1903 Born. 164 ; Thithi Pakurudasu v. Bheemudu I L R 1926 Mad. 430 ; Behari Lall v. Jadodish I L R 1931 Cal. 798 ; Narain Padmanabham v. Badrinadh Sarda I L R 1935 Mad. 582 ; Chava Ramanayudu v . Suryadevara Seetharamayya and others A I R 1935 Mad. 440 ; Hadibandhu Behera v. Gopal Sahu and others A I R 1943 Pat. 374 ; Teegula Babia v. Muhammad Abdus Subhan Khan A I R 1954 Hyd. 156 and Jagjit Singh v. State of Hyderabad and another A I R 1955 Hyd. 28 ref.
Shamsuddin v. Allah Dad Khan A I R 1925 Lah. 65 considered.
Dehra Dun‑Mussoorie Electric Tramway Co. Ltd. v. Official Liquidators A I R 1930 All. 357 distingnished.
A. A. Khan for Plaintiffs.
Hassan A. Shaikh for Defendants.
Noorul Arfin : Amicus curie.
Dates of hearing : 27th April, 1st, 2nd, 9th, 11th, 17th, 18th, 23rd May and 21st August, 1962.
This is a suit for declaration and injunction instituted by Wali Muhammad son of Ibrahim and four others against the firm of Messrs Noor Ali & Co. The claim arises out of a contract dated 30th August 1957, under which the defendants purport to have sold to the buyers, who are described as Messrs Gul Ahmad Ghaffar, about 30,000 lbs. of bona fide fents of American origin. The import of these goods was prohibited except under a valid licence issued by the Controller of Imports and Exports. The defendants held such a licence, and it is the case of the plaintiffs that under the authority of their licence they had arranged to import the above goods under letter of credit opened through the Mercantile Bank of India Limited, Karachi, and the plaintiff or the plaintiffs through the intervention of brokers entered into a forward contract with the defendants for the sale by the latter of the aforesaid goods ; that along with the contract an indemnity bond was also executed in favour of the defendants to keep them indemnified against any penalty or confiscation which might be ordered by the Customs Authorities. These goods arrived at Karachi in December 1957, per s.s. Steel Arteson ; that the relevant documents which had been obtained from the defendants were filed along with the bill of entry by the clearing agents of the plaintiffs but the Assistant Collector of Customs. Appraising and Intelligence Branch raised objection with regard to the declaration of the value of the goods ; that the Collector of Customs had ordered the release of the goods under section 87‑A, Sea Customs Act; that ultimately it became necessary to produce a permit from the Controller of Imports and Exports as evidently the licence of the defendants had been exhausted by the import of other goods, which also appeared to have been found by the Customs Authorities as having been undervalued. It appears that a permit was obtained but it was found to be a bogus one and the goods, therefore, could not be cleared and remained with the Karachi Port Trust. It is the case of the plaintiffs that though they had paid 40% of the C. & F. value of the goods to the defendants according to the terms of the contract the defendants were dishonestly trying to get delivery of the gods, to which they had no right or title and were making representation in the market that they were the owners of the goods thereby casting a cloud on the title of the plaintiffs with regard to those goods. The plaintiffs have, therefore, sued for a declaration that they are the owners of the said goods, the title to which has passed into them and they are entitled to take delivery thereof, and further that the defendants be restrained by. permanent injunction from alleging that the said goods belonged to them and from taking deliver) thereof from the Customs Department.
2. There are five plaintiffs in this case. It is their case that plaintiff No. 2, who is the director of the plaintiff No.2, was entrusted by his two nephews Gul Ahmed and Abdul Ghaffar plaintiffs 4 and 5, with their funds wish a request that the plaintiff No. 2 should invest it in some profitable business, and plaintiff No. 2, gave over the said fund to plaintiff No. 1 who is the manager of the plaintiff No. 3. and instructed him to make investment under the name and style of Messrs Gul Ahmed Ghaffar, and that it was in this capacity that the said manager signed the contract with the defendants All these persons have been joined as plaintiffs to avoid any technical objection in respect of the question as to who in fact was entitled to claim under the contract which is the subject‑matter of the suit.
3. The written statement of the defendants apart from a number of technical objections and a mass of vague allegations admits the existence of the licence by the defendants and the fact that they had arranged for the import of fents through the Mercantile Bank of India Ltd. The terms of the indemnity bond were admitted though the contract of forward sale as such was not admitted. It was denied that the title in this case had passed to the plaintiffs. It was also denied that there were any brokers in this transaction. Then in para. 4‑A the following plea was raised
"The contract as alleged by the plaintiffs is void under section 23 of the Contract Act by reason of laws relating to import of goods on the import licences, namely the transfer of the import licence which is shown to be the purport of the said contract is prohibited and mis‑declaration is penal. It is, therefore, submitted that by reason of the said illegality no relief can be granted under the said contract."
4. It was admitted that the said 63 bails of fents arrived per s.s. Steel Arteson but it was denied that the documents of title to the said goods were delivered to the plaintiffs. It was admitted that the clearing agents were directed to deliver the goods after clearance in the godown of the defendants as the question of penalty imposed by the Customs Authorities was still to be decided and the buyers not having completed their part of the obligation under the indemnity bond, the ownership in the goods still vested in the defendants. It was alleged that at the instance of the plaintiffs a bogus clearance permit was obtained from the Chief Controller of Imports and Exports, of which the defendants having come to know had reported the matter to the authorities which averted the clearance of the goods. It was denied that the Customs Authorities were willing to release the goods without a permit and it was further alleged that the goods were liable to be forfeited to the Government and that in any case a very heavy penalty was likely to be levied in respect of them. It was then stated that the plaintiffs had committed breach of the contract for which their earnest money was liable to be forfeited and the defendants were entitled to damages and compensation, and that they were also entitled to clear the goods themselves. It was denied that there was any cause of action in favour of the plain tiffs and it was asserted that the suit, as framed, was not maintainable and the plaintiffs were not entitled under law to any of the relief s which had been claimed by them. It was lastly submitted that the suit was liable to be dismissed with com pensatory costs to the defendants. I may observe here that the evasive nature of the pleadings in this case may well have arisen because of the nature of the transaction itself, to which I shall presently revert.
5. The following consent issues were eventually adopted
"(1) Whether the contract between the buyers and the defendants is void under section 23 of the Contract Act
(2) Has the property in the goods passed to the plaintiffs or any of them
(3) Do the plaintiffs prove that they have paid Rs. 62,000 to Messrs Cowasjee Nariman & Co. for sales‑tax, duty and K. P. T. dues
(4) Whether the suit is bad for non‑joinder of parties
(5) Whether the suit in its present form is maintainable
(6) Whether the plaint discloses any cause of action
(7) Whether the amount under Exh. 7 was paid to the defendants against delivery of documents and also the amount under Exh. 8 was paid
(8) Whether G. H. Wali Muhammad and Cowasjee Nariman were appointed clearing agents by the plaintiffs (b) and they were directed to deliver the goods. in the defendants godown
(9) Whether the buyers committed breach of contract If so, what is the effect
(10) Whether there is privity of contract between the plaintiffs and the defendants
(11) Whether plaintiffs are entitled to declaration and injunc tion prayed for
(12) What should the decree be
(13) Costs and general "
6. Issue No. 1 is the principal issue in this case and I shall now proceed to deal with it. Admittedly the import of the goods in question viz., fents of American origin was prohibited except under a valid licence. It is also admitted that the licence which the defendants had obtained was not transferable except in accordance with the permission of the licensing authority. Ii is no body s case that such a permission m this case had been obtained. The question that arises is whether the arrangement between the parties in this case amounted to a forward sale by the defendants to Messrs Gul Ahmed Ghaffar of 30,000 lbs. of American fents or whether in reality it was a case of transfer of import licence by the defendants to the plaintiffs or any‑one of them to enable them to import the aforesaid goods. It would be convenient to reproduce here the two documents, Exh. 5. namely the so‑called contract and Exh. 6 the indemnity bona to appreciate the real nature of the transaction between the parties. I may say that though in the written statement the contract was not specifically admitted by the defendants but later on that stand was abandoned and Exh. 5 was admitted by the defendants as representing the terms of the contract upon which they had agreed with the plaintiffs in respect of this transaction Let me reproduce these two documents
"Forward Contract.
Subject to the goods being shipped by the Suppliers
Buyers:‑Messrs Gul Ahmed Ghafar, Khori Garden, Karachi.
Sellers :‑Messrs Noor Ali & Co., Frere Road, New Challi, Karachi.
Description of goods :‑About 30,000 lbs. Bona fide Fents (American Origin).
Rate :‑
40% Profit on C. & F. value of the goods to be imported under Letter of Credit No. US/P‑100/1534 opened through the Mercantile Bank of India Ltd., Karachi. Above‑mentioned goods are booked @ U S. 19 per lb. C. & F. Karachi.
Terms :‑
All charges viz., Import Duty, Sales Tax, Insurance Charges, Bank Charges, Custom clearance charges and all other charges and expenses to be paid by the buyers. Any demand, penalty, taxes, expenses regarding the above goods, if demanded by the Customs, Government or any such authority shall be paid by the buyers. Sellers are not responsible for any shortage, damage, difference in quality, colours, design, rates, shipment and delivery.
Payment.‑
Buyers shall pay full amount against the delivery of the documents. Deposit, if any, will be adjusted after the goods being cleared from the custom and all the relative documents and bill of entry received by the sellers."
In view of your signing various papers and Customs Declara tion forms, including Form VBF‑9A, we undertake as under :‑
That the goods imported under L/C No. 100/1534 through the Mercantile Bank of India Ltd., Karachi.
(1) That, should the customs penalize you and/or confiscate the goods, as a consequence of misdeclaration, or any other reason whatsoever, we shall be fully responsible to you for the same and shall hold you indemnified against all losses arising therefrom.
(2) That, we are responsible for 3 (three) years from the date of the Bill of Entry for any penalty and/or claim the Customs may lodge against you at a later date after the clearance of the goods, and as a cover, we hereby agree to deposit with you in cash Nil per cent. of the value of the goods, and should the claim or penalty exceed this amount we are bound by this indemnity to furnish you with further adequate funds, immediately on demand.
(3) That, we shall not be liable for the refund of deposit made under para. two above, until expiry of three years from the date of the Bill of Entry, and shall only then be entitled to receive full or part of the deposit as the case may be.
(4) That, we shall lose our title to all the goods imported by you on our account, should we fail to comply with any of the above terms, and our deposits held by you shall be forfeited without any compensation to us.
(Sd.) Gul Ahmed Gafar"
A perusal of these documents amongst other things would show that no price in figures was fixed of the 30,000 lbs. of the fents. It was shown to have been booked at 19 cents per lb. C. & F. Karachi and the defendants, who were supposed to be importers of these goods, were to get 40 per cent profit on C. & F. value of the same. The so‑called sellers were not responsible for any shortage, damage, difference in quality, design and rates. They were not even responsible for delivery. Any demand, penalty etc. by the Customs Authorities or the Government were to be paid by the so‑called buyers. Not content with this the defendants also obtained from the so‑called buyers a document of indemnity which amongst other things provided that if the Custom imposed any penalty or confiscated the goods in consequence of mis‑declaration or for any other reason, it will be the buyers who will be responsible and they shall keep the sellers indemnified against all such eventualities. This bond l to remain valid for 3 years, evidently because that is the period within which the Customs Authorities can impose penalties in respect of any mis‑declaration etc.
7. Such a bond was obviously necessitated by the fact that the licence was in the name of the defendants and on paper they were to be the importers of these goods and the bill of entry for the clearance of these goods and all necessary declaration would have to be filed in the name of the defendants who were naturally anxious to keep themselves immuned from any liability in the nature of penalty etc. which might be imposed by the Customs Authorities on the ground of mis‑declaration about the value of the goods about the goods themselves.
8. It may now be stated as to what happened to these goods after they arrived at Karachi from U. S. A. by the s.s Steel Arteson and the action taken by the Customs Authorities in respect thereof. It would be convenient to refer to Exh. 11 which is the order of the Collector of Customs passed on 2nd February 1961, in respect of these goods. 'This document was taken on record at the request of both the parties and the facts stated therein were not disputed. On the arrival of these good which were imported under the licence No. L004168 valid for Rs. 27,431‑4‑0 a bill of entry was filed by the clearing agents on behalf of Messrs Noor Ali & Co. and these 30,000lbs. of bona fide fents were declared to be of the value of Rs. 27,88" only. The Customs Authorities finding that the goods had been undervalued issued a notice to Messrs Noor Ali & Co., calling upon them to show cause why action under section 167 (8) and (9) (b) of the .Sea Customs Act should not be taken against them. Messrs Noor Ali & Co., by their letter dated 15‑4‑58, requested for the examination of the goods, which being done. they evidently agreed to the valuation fixed by the Custom and requested for the return of the bill of entry tee enable ti)e : to apply to the Chief Controller of Imports and Exports for a clearance permit for the excess amount of the value of the goods. They also informed the Customs Authorities by their letter dated 11‑7‑58, that although the bill of entry was filed by the clearing agents Messrs G. H. Wali Muhammad, the matter will be dealt with by another agent Cowasjee Nariman & Co. These clearing. agents produced a clearance permit dated 5‑8‑58 for Rs.91,074 in favour of Messrs Noor Ali & Co., and a deposit of Rs. 53,000 was taken towards the expected duty and sales tax on 6‑8‑58, but on 7‑8‑58, it was found that the permit was a forged one and the matter was, there are, reported to the police. The Valuation Branch after Notice to Messrs Noor Ali & Co. fixed the fair value of the goods at Rs. 1,45,517‑14‑0 and notice was repeatedly issued to Messers Noor Ali & Co. for the purpose of adjudication. It was at this stage that the plaintiff No. 3 informed the Customs House that they had purchased the whole of the said consignment in the name of Messrs Gul Ahmad Gafar under a contract with Messrs Noor Ali & Co. dated 30th August 1957. They also disclosed that the correct value of the goods was Rs. 1,19,000 and alleged that they had actually paid this sum to Messrs Noor Ali & Co. and also a sum of Rs. 62,000 to the clearing agents Messrs Cowasjee Nariman towards the duty and sales tax. On 31‑10‑60, the plaintiffs' Advocate informed the Customs House about the filing of the present suit. As, however, there was no injunction restraining the Customs Authorities from proceeding with the adjudication the Collector of Customs by his order upheld the value fixed by the Valuation Branch and held that the goods were liable to confiscation under clauses (8) and (9) (b) to section 167 of the Sea Customs Act and ordered accordingly. However, under section 183 of the Sea Customs Act he gave an option for the redemption of the goods on payment of a fine of Rs. 1,80,000 in lieu of confiscation. He further directed that the fine will be realised from the party who will be adjudged as owner of the goods by the High Court in this case and provided that such owner wishes to exercise the option to redeem the goods. He further directed that the option was to remain in force upto three months or such other time as may be extended by the Court, otherwise the goods were to be disposed of under the provisions of the Sea Customs Act. I may mention here that during the course of this case both the parties have expressed their anxiety to be permitted by this Court to pay off the Customs dues and get the goods released. I have reproduced the material facts contained in the order of the Collector of Customs because the main purpose of this suit is to enable the plaintiffs upon the basis of a declaration by this Court to get the release of the goods while the defendants have strenuously contested this claim because they hope that on the dismissal of the suit they would be able to get the goods released on payment of fine.
9. According to the contract, Exh. 5, the defendants upon this transaction were merely to receive 40% profit on C. & F. value of the goods. This value amounted to Rs. 28,000. The plaintiff No. 1 who gave evidence as P. W. 1 stated that a sum of Rs. 11,000 which would be equivalent to this 40% was paid to the defendants at the time of the making of the contract. This has been denied by the defendants' Manager, Abdullah, who appeared as D. W. 2. Two payments have been admitted by the defendants. These are : (1) Rs. 28,000 on 16‑11‑57 as per Exh. 7 and (2) Rs. 300 on 31‑12‑57, Exh. 8. These receipts issued by the defendants state that the first Rs. 28,000 was made in part payment against documents under the relevant L/C and the other receipt states that this payment of Rs. 300 was by way of further payment against documents. Admittedly, the two payments would cover the documents which had been received in the bank in respect of these goods. Therefore, if the goods had been allowed to be cleared upon the declaration made to the Customs Authorities with regard to their valuation, the plaintiffs would have been able to get these goods for a total payment, according to them, of about Rs. 39,000 plus Customs duty and sales tax, which on the declared value would have been about 1/3rd of it. Let us now see what was the market value which these goods were expected to bring. Wali Muhammad, P. W. 1, admitted that the value of these goods in Karachi would have been between Rs. 1,00,000 and Rs. 1,50,000. He also stated that their total expenditure on these goods including the price paid to Noor Ali & Co. as well as the duty and tax would have cone to about Rs. 50,000 to Rs. 60,000. 1 am, however, satisfied that the market value of these goods was very much more than what has been stated by Wali Muhammad. Wali Muhammad himself admitted that according to the order of Collector of Customs Exh. 11, the total amount of the Customs duty, tax and penalty worked out to between two and two‑and‑a‑half lacs of rupees and that they were prepared to pay all this and get the goods cleared. As I have already said the defendants were equally anxious to pay all this if permitted by the Court and get the goods released from the Customs. I find it impossibie to believe that the defendants parted with these goods by a forward contract, Exh. 5, under which they were merely to receive a sum of Rs. 11,000 and they allowed the plaintiffs merely on payment of the invoice value of about Rs. 28,1000 and the relative Cu,,toms duty and sales tax and receive these goods which they would have been able to sell in the Karachi market for something like Rs. 2,00,000, if not more.
10. The next circumstance which must be considered for determining the true nature of the transaction between the parties is the question of payment received by the defendants. According to the contract they were to receive 40% of the C. & F. value of the goods, which worked out to about Rs. 11,000. Now even with regard to this sum the defendants deny that they ever received it. In fact it appears that nobody ever thought of this negligible amount. The plaintiffs did not allege in the plaint that this amount had been paid, nor did the defendants in their very lengthy written statement indicate that they were resisting the plaintiffs' claim on the ground that they had not received the 40% of the C. & F. value. They had repeatedly stated in the written statement that the title to the goods had not passed to the plaintiffs inasmuch as they had not fulfilled their part under the indemnity bond, and until the question of penalty was decided the ownership would still remain with the defendants, and it was for this reason that they had asked the clearing agents to deliver the goods when they were cleared in their godown. It was for the first time at the trial when I asked Mr. Hassan A. Shaikh, the learned Advocate for the defendants, as to what was the breach on the part of the plaintiffs that he stated on 27‑4‑62, that the breach consisted of the failure of the plaintiffs to pay 40% on C. & F. value of the goods, and that the plaintiffs were also liable to pay L/C charges amounting to Rs. 150.25 and bank expenses amounting to Rs. 477.81. Wali Muhammad, P. W. 1, stated that they had paid the defendants Rs. 11,000, but when asked about the receipt he said that the same had been misplaced. They examined one of their servants namely Abdul Sattar who also deposed about the payment of Rs. 11,000 to the defendants. I do not believe these statements, and I do no believe that 40% of the C. & F. value was the price which the defendants had really contracted to receive or which they actually received. It was very much more. The plaintiff No. 1 in the witness box, when confronted with the position with regard to the real value of the goods, stated that they had paid something between Rs. 2,50,000 and Rs. 3,00,000 to the defendants in respect of this transaction. However, in order to stick to his case that the terms of the contract, Exh. 5, were genuine and were intended to be acted upon he said that this amount had been paid after the arrival of the goods and because of the pressure brought upon them by the defendants in view of the difficulties about their clearance from the Customs House. When further pressed, he stated that he had paid this amount to the defendants for purposes of Customs duty, sales tax and the penalty. He stated that he had made a similar declaration before the Martial Law Authority about this payment to the defendants. He, however, had to admit that they did not even know at that time whether any penalty had bean levied by the Customs Authorities in regard to these goods. It has also been established that with regard to the; Customs duty and sales tax a further amount was paid by the plaintiffs to the clearing agents Messrs Cowasjee Nariman and the order of the Collector of Customs shows that a sum of Rs. 53,000 was deposited by the said clearing agents in respect of Customs duty and sales tax. It is not necessary for me m this case to decide as to what was the actual amount paid by the plaintiffs to the defendants in respect of this transaction, but I am satisfied that it must have been a very large amount considering the market value which these goods. were to fetch at Karachi and I am also satisfied from all the circum stances of the case that this amount representing the profit, which the defendants would have made if they had themselves imported the goods and sold them in the market, must have been paid to them by the plaintiffs at the time when the defendants signed this contract and bound themselves or paper merely to receive Rs. 11,000 and that this term of 40% G, & F. value in the contract was a sham. Having regard to all these circumstances
I have reached the conclusion that the true importers of these goods were the plaintiffs and not the defendants, and it is the former who had arranged with the foreign suppliers for the export of these goods to Pakistan. If this was not so, I cannot contemplate a purchaser in a case of a forward contract to bind himself in the manner in which the plaintiffs have done under the contract, Exh. 5, and the indemnity bond, Exh. 6.
The part of the defendants in this transaction was merely that they provided the import licence. As in fact the importers were the plaintiffs, the defendants took care to bind them down in all respects including the Customs penalty because on paper the import as well as all the necessary dealings with the bank and the Customs would have to be in the name of the defendants as they were the licence holder. It is true that the letter of credit for the import of these goods was opened a little before the date of the so‑called forward contract, but that is perfectly consistent with the true nature of the transaction because the parties were anxious to put up all appearances to show that the importers were the defendants ‑and that they were not indulging in a transfer of import licence. For all these reasons I have no hesitation in holding that the transaction between the parties was not that of a forward sale ; that the true importers of these goods were the plaintiffs and that they had been able to do so on the basis of the import licence No. L004168 which had been granted to the defendants. This clearly amounted to a transfer of the import licence No. L004168 by the defendants. This was expressly prohibited. The question that next falls for consideration is whether the contract between the parties comes within the mischief of section 23 of the Contract Act.
11. The Imports and Exports (Control) Act, 1950; provides by section 3 (1) that the Central Government may by order published in the Official Gazette prohibit, restrict or otherwise control the import or export of goods of any specified description. It is an admitted position that the import of the goods in question was prohibited. by publication in the Official Gazette. Subsection (2) of section 3 provides that no goods of the specified description shall be imported except in accordance with the conditions of a licence to be issued by the Chief Controller or any other officer authorised in this behalf by the Central Government. Subsection (3) lays ' down that all, goods, to which any order under subsection (1) applies, shall be deemed to be goods; of which the import has been prohibited or restricted under section 19 of the Sea Customs Act. Section 5 'provides that if any person contravenes any order made or deemed to have been made in this Act or the rules made thereunder or makes use of an import or export licence otherwise than in accordance with any condition in' that behalf imposed under this Act, he shall without prejudice to any confiscation or penalty to which he may be liable under the provisions of the Sea Customs Act, be punishable with imprisonment for a term which may extend to one year or with fine or with both. The Import and Export Licences (Conditions of Issue) Order, 1949 which was made under Act XVIII of 1947, makes it obligatory on the officer issuing a licence that he shall issue it subject to the condition that it shall not be transferable except in accordance with the permission of the licensing authority or a person duly authorised by it in this behalf. It is an admitted position that such a condition was attached to the licence in question. This Order of 1949 has been preserved by section 4 of the Imports and Exports (Control) Act, 1950 and applies to the present case.
12. Section 23 of the Contract Act may now be reproduced.
"23. The consideration or object of an agreement is lawful, unless‑
it is forbidden by law ; or is of such a nature that, if per mitted, it would defeat the provisions of any law ; or is fraudu lent ; or involves or implies injury to the person or property of another ; or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful.
Every agreement of which the object or consideration is unlawful is void."
The contention of Mr. A. A. Khan, the learned Advocate for the plaintiffs, was that the prohibition against the transfer of the licence .did not invalidate the agreement, because this was imposed merely for the purposes of ensuring the collection of revenue and was intended as a measure of administrative convenience. He further contended that an agreement involving the transfer of such a licence was not opposed to public policy, for, he argued that it was a cardinal principle of public policy that, people should be able to contract freely in the interest of trade and commerce and the contravention of the Order or the term of the licence merely entailed a penalty but did not render the agreement void. On the other hand, Mr. Noorul Arfin, who appeared as amicus curiae at my request, urged that if the transaction in question involved the transfer of licence it would clearly be void under section 23 of the Contract Act inasmuch as the object of the agreemant would be both forbidden by law and opposed to public policy. Mr. Hassan A. Sheikh, the learned counsel for the defendants also took the same line.
13. Numerous cases have been cited at the Bar. These mainly fall under two categories. One set of cases relates to Acts, such as Tolls Act, Forest Act and the Ferries Act. It has been laid down in cases falling under these Acts that the statute or the rules framed thereunder do not themselves forbid the transfer of a contract or a lease, nor do they attach a penalty to it, but merely give power to the administrative authority to impose a condition forbidding such‑ transfer, the object of which is based on administrative grounds for the convenient collection of revenue. It has also been observed in these cases that the purpose of these Acts was the collection of revenue and not the protection of public morals. I shall now very briefly deal with these cases.
14. In the case of Nazaralli Sayed Imam v. Babamiya Dureyatimsha (I L R 1940 Born, 64) the 'defendant had purchased the right to cut grass in the Government forest at an auction and was granted a licence by the forest authorities. That licence prohibited the assignment .of a share or interest in the licence. The plaintiff claimed that he had entered into a partnership with the defendant under which he was to get half a share of the profit of the business under the licence. The defendant, apart from the existence of the partnership agreement, also contended that the agreement was void under section 23 of the Indian Contract Act. The learned Judges of the Bombay High Court repelled this contention and observed that they had been unable to find any provision of statute law which made it obligatory upon the parties to observe the condition of the licence. The licence, of course, could be revoked by the Forest Officer if the licensee disregarded the terms of it, but it did not follow from that that an agreement to share profit, which would contravene the terms of the licence as between the Forest Officer and the licensee, was forbidden by law or was calculated to defeat the provisions of any law. In another case of the same High Court reported in Bhikanbhai v. Hiralal (I L R 1924 Bom, 622) which related to the Tolls Act, the facts were these : The Government leased to plaintiff the levy of tolls on certain conditions. One of these conditions was that the plaintiff was not to sublet the tolls without the previous permission of the Collector. One of the clauses of the lease which was granted to the plaintiff provided that for a breach of any of the conditions. of the lease the Collector might impose a fine of Rs. 200. The plaintiff sublet the toll to the defendant without the permission of the Collector and sued to recover a certain amount which the defendant promised to pay for the sublease. The defendant contended that the contravention of the condition of the lease was illegal and opposed to public policy and, therefore, the contract was void under section 23 of the Contract Act. This contention was overruled upon the ground that the statute itself did not forbid the transaction of a subletting, nor did it provide for a penalty for such an act, but it merely gave power to impose a condition under which it could be forbidden if the Collector found it fit to do so and this could only be for purely administrative purposes. Cases falling under the Opium or the Abkari Acts were distinguished on the ground that under those Acts the sale of opium or excise goods was expressly forbidden. In another case of the Bombay High Court, Bhagvant Genuji Girme v. Gangabisan Ramgopal (A I R 1940 Bom. 369) a term of a lease of tolls from Government prohibited an assignment except with the previous permission of the Collector and empowered the Collector to revoke the lease or impose penalty against breach of the terms of the lease. An assignment had been made in this case without the permission of the Collector but it was held that this merely offended against the covenant in the lease but did not render the contract void under section 23 of the Contract Act. The Madras High Court took the same view in the case of Abdullah v. Mahmod (I L R 1926 Mad. 156) in which a lease had been granted under the Public Ferries Act and con tained a term that the lessee was not to transfer or sublease the ferry without the previous sanction of the Collector. It was held that this transaction might be invalid against the Government, but it was valid between the lessor and the assignee. It was also pointed out that no rule had been framed under section 16 of the Public Ferries Act prohibiting such transfer of sublease.
15. It would, therefore, appear that the decision in these cases turned on the ground that there was no prohibition in the statute or in any rule framed thereunder prohibiting a transfer and the condition in any lease or grant restricting a transfer was for purposes of administrative convenience and did not render the contract of transfer void.
16. In the other category of cases which fell under the Excise or Opium Acts it has been consistently held that a transfer of a licence or creation of an interest therein by the licensee would render the transaction void under section 23 of the Contract Act as being forbidden by law and opposed to public policy. In the case of Gopalram Hanmant v. Kallappa (I L R 1903 Boxtt. 164) the plaintiff sued the defendant for dissolution of partnership and a certain share of money including capital and profits in respect of certain opium and Ganja contracts. The licence from the Collector contained an express prohibition against the taking of partners without the Collector's written permission and section 45 of the Abkari Act made the contravention of the condition liable to a penalty of Rs. 100. It was held that the contract of partnership was illegal. The case of Thithi Pakurudasu v. Bheemudu (I L R 1926 Mad. 430) which was decided by the Madras High Court, also related to a sublease of a licence to sell arrack which was in contravention of the condition of the licence under rule 21 of the Abkari Act. It was held that the agreement was void under section 23 of the Contract Act and the plaintiff could not sue on it. The Calcutta High Court took the same view in the case of Behari Lall v. Jadodish (I L R 1931 Cal. 798) in which the licensee of several liquor shops had transferred the business in the name of the plaintiff, who brought an action for the recovery of a certain suns of money. It was held that the prohibition by the Excise Act of the sale of liquor without a licence was based upon the principle of public policy and on moral grounds and the purpose of the Act was not confined to the protection of revenue, and an agreement which contravenes the policy of the Act or has for its object the carrying on of a business in contra vention of the Excise law is illegal. The Madras High Court took the same view in the case of Narain Padmanabham v. Badrinadh Sarda (I L R 1935 Mad. 582) in which two persons who had obtained a licence from the Collector for the sale of. opium subject to the condition that they shall not sell, transfer or subrent their privileges without the permission of the Collector, took a third person as a partner who eventually brought a suit for dissolution and wind ing up of the business. Holding that the agreement was void and the suit was not maintainable, the learned Judges observed that the effect of the agreement was to enable the third person to sell opium without a licence, a fact which was forbidden by section 4 of the Opium Act and made penal by section 9. The contract being intended to enable the third person to do what was forbidden , by . law was unlawful and void. It was further observed that the provisions of the Abkari and Opium Acts were not intended merely to protect public revenue but the provisions contained in them were based on public policy. The question came before a Full Bench of the same High Court m the case of Chava Ramanayudu v. Suryadevara Seetharamayya and others (A I R 1935 Mad. 440), in which the plaintiff had advanced money in respect of a partnership in an Abkari business which was prohibited under clause 27 of the General Sale Notification under the Madras Abkari Act. It was held that the partnership was illegal in view of the prohibition contained in clause 27 of the Notification and the suit on the promissory note in respect of money advanced in pursuance of the agreement was accordingly dismissed. A similar question arose before the Patna High Court in the case of Hadibandhu Behera v. Gopal Sahu and others (A I R 1943 Pat. 374) in which a liquor contractor had entered into an agreement with a third person whereby the entire charge of the excise shop was given to the latter who‑agreed to pay the former licence fee and the price of the stock and certain profit every year. Upon these facts it was held that this amounted to a transfer of the licence, which was, prohibited by rule 143 framed under section 89 of the Excise Act, and it was made punishable under section 57 thereof. The suit of the licensee for the recovery of the licence fee, and the price of the stock and the profit, under the agreement was, dismissed on the ground of the illegality of the agreement and it was held that section 65 of the Contract Act did not apply as both the parties were in pare delicto. The Hyderabad High Court also took the same view in, two Full; Bench eases in Teegula Babiah v. Muhammad Abdus Subhan Khan (A I R 1954 Hyd. 156) and Jagjit Singh v. State of Hyderabad and another (A I R 1955 Hyd. 28). Both these cases related to the Excise Act, under which rules had been framed and rule 23 prohibited the transfer of the business of liquor shop or any partnership into its business without the previous permission of the Government. It was observed that the restrictive provisions were not merely for the protection of the State revenue or for convenience of revenue collection but also controlled the sale of liquor and were intended for the protection of the public. That being the intention of the Act and the rules, any contracts made in con travention of these provisions were invalid.
17. In paragraph 11 above I have already referred to the relevant provisions of the Imports and Exports (Control) Act and the Import and Export Licenses (Conditions of Issue) Order. Can it be said that the object of the Act is merely the protection of revenue or whether the prohibition against transfer of licence without previous permission is merely for the purpose of administrative convenience such as the collection of revenue. The answer must clearly be in the negative. The preamble of the Act reads
"Whereas it is expedient to continue for a limited period powers to prohibit, restrict or otherwise control imports into and exports from Pakistan."
We then see in section 3 the power given to the Central Government to prohibit, restrict or otherwise control the import or export of goods of any specified description. Section 5 provides for the penalty for any contravention apart from the penalty leviable under the Sea Customs Act, and the Import and Export Licences (Conditions of Issue) Order which applies to the present case makes it obligatory for the licensing authority to issue the licence subject to the condition of its non‑transferability without the permission of the said authority. The control and the restrictions contained in these provisions are not designed for the protection of the revenue but are based upon much large considerations which affect the economy of the country with which the public interest is intimately concerned. The restrictions, upon imports must have been occasioned in consideration of the limited foreign exchange of the country, and the best manner in which it could be utilised having regard to the true requirements of the community. For instance, the authority might at a given time totally restrict the import of luxury goods by refusing to give a licence for their import, and even amongst the essential goods they might sometimes have to choose as to which amongst them should be allowed to be imported: Further, while granting the license, the authority would have to consider the fitness of the person who applies for it so that licence might not be misused or abused.. Similar and other considerations might arise in the matter of exports. The Act is thus primarily designed to control, restrict and regulate imports and exports tin the grounds of public policy, and where a condition is attached to a licence granted under the Act or an order passed thereunder and its contravention is made punishable, it becomes clear that‑ any agreement in violation of the condition would be void and unenforceable. I would like to add that even if the main object of a statute is the protection and collection of revenue but the statute itself or the rules framed thereunder forbid the doing of a thing and provide a penalty for a contravention, an agreement calculated to defeat such a provision would still be void. It will have been noticed that in the cases cited above in the first category the agreements were held to, be valid upon the ground that the prohibition was not contained in the statute or the rules themselves and that no penalty was provided herein.
18. What in the present case was the object or the design of the parties, in respect of the agreement in question ' From what I have observed earlier the answer seems to be clear. The defendants had an import licence and the plaintiffs were anxious to import goods of their own choice and the parties agreed that upon the defendants allowing the plaintiffs the use of the licence and the further, use of their name for purposes of the import and the clearance of the goods, the latter was to receive a certain sum of money. Such an agreement is forbidden the Import and Export Licences (Conditions of Issue) Order which was passed under the Imports and Exports (Control) Act. Further the transaction was of such a nature that if permitted it ' would defeat the provisions of the aforesaid law. Under section 10 of the Contract Act: an 'agreement is enforceable only if it is made for a lawful consideration and with a' lawful object. Section 23 declares what kinds of consideration and 'object are not lawful, and it provides that if a consideration for a promise is unlawful the agreement arising from such a promise shall be void. In the present case, the consideration for the promise was in fact the transfer of the import licence and 'was thus unlawful. That it was given a form of a ' forward contract ‑ of sale by guise and subterfuge does not alter the real nature of the transaction. Parties who decide to achieve a certain result by contravention of any law or regulation, do not generally do so openly. They try to disguise as much as possible the real nature of the arrangement. But Mr. A. A. Khan argued that there can be no contravention of the condition of the licence unless there is a physical transfer of it. , It is, however, plain that it is not the form of the transaction but the substance of it which matters, and, when a transaction involves a transfer of a licence, it is no answer to the charge of contravention to say that the bit of paper, on which the licence was issued, did not physically pass from one party to another. Mr. Khan relied upon a case, Shamsuddin v. Allah Dad Khan (A I R 1925 Lah. 65) in which a sale‑deed in respect of a certain land had been executed in favour of the plaintiff who later on brought a suit for possession. The person who had executed the sale‑deed did not appear but his joint owner put up a defence that the sale was void inasmuch as the plaintiff had purchased the land not for himself but for two other persons who were prohibited from purchasing the said land under the provisions of Alienation of Land Act. Upon these facts it was held that a Civil Court has no power to decline to enforce a contract which is legal and binding in every respect on the face of it between the parties, on a mere assumption that in reality it was intended for the benefit of a third person against whom a statutory prohibition to enter into such a contract existed. It is, however, significant to note that the learned Judge observed that if the two persons who were alleged to be the real purchasers ever attempted to assert any right to the possession of the land by virtue of the sale‑deed in question then the provisions of the Alienation of Land Act would properly be invoked. The above general observation made by the learned Judge based upon an earlier case must, therefore, be understood in the circumstances of the case in which it was made. If, however, the proposition was intended for general application, which I am satisfied it was not, then I must disagree. The fact that an illegal transaction is clothed in a manner as to give it an appearance of legality does not prevent the Court from looking into the real nature of the transaction for the purposes, of deciding a question which arises before it. Mr. Khan then argued that motive was essentially different from the consideration or object of the contract and the fact that the contract was entered into in the expectation of some ulterior gain would not affect the contract which was valid in every way. He relied upon a decision of the Allahabad High Court Dehra Dun‑Mussoorie Electric Tramway Co. Ltd. v. Official Liquidators (A I R 1930 All. 357). The facts of that case were entirely different, and it is sufficient to say that in the present case, as I have shown above, the consideration of the contract itself was unlawful and there was no question of a motive for an ulterior gain from a contract which by itself was perfectly valid. For the reasons given above I have no hesitation in holding that the agreement between the parties in the present case clearly came within the mischief of section 23 of the Contract Act and is, therefore, void. My finding on issue No. 1 is, there fore, in the .affirmative. The word contract' has been loosely used in the issue for the word agreement'.
19. Issue No. 2.‑In view of. my finding that it were the plaintiffs who were the real importers of the goods and had bought it from the foreign suppliers though the indenting was done in the name of Noor Ali & Co. because the latter held the licence, the question of the property in the goods passing from the defendants to the plaintiffs did not arise. The latter were in fact the owners of the goods. I find accordingly.
20. Issue No. 3.‑The plaintiffs in para. 7 of the plaint specifically alleged that they had paid a sum of Rs. 62,000 through the clearing agents Messrs Cowasjee Nariman & Co. towards duty, sales‑tax and K. P. T. dues. They also produced an acknowledgment of the clearing agents, Exh. 13. Dealing with this paragraph, all that the defendants said in the corres ponding para. of the written statement was that it was denied that Rs. 62,000 were paid at the instance of the defendants or through them. They did not even indirectly indicate that it were they who had paid this money. An attempt was, however, made at the stage of evidence to show that this money was paid by the defendants. Their Manager Abdullah, D. W. 2, stated that the defendants had sent about Rs. 60,000 to Nariman on account of duty and sales tax in respect of this consignment in early July 1958. When asked whether any entry of it was made in the books of the defendants, he replied that those books were destroyed by fire in July 1958. When pressed further he admitted that immediately after the fire fresh accounts were made but he admitted that there is no entry in their books of account in respect of this Rs. 60,000. Finding his position to be hopeless he altered it later and said that it was not a fact that the defendants had paid Rs. 60,000 to Nariman in July and the fact was that the defendants had an account with Nariman and their money used to be lying with them and Nariman had been instructed to spend Rs. 60,000 from that account in respect of the consignment in question. He said that this instruction was oral and admitted that he did not know as to who had given this instruction. He further stated that he was told about this fact by one Mr. Dubash who was then the Manager of the defendants. Mr. Dubash is alive and is in Karachi but he was not examined. It is clear that the defendants' case as put out through this witness in regard to this payment of Rs. 60,000 or Rs. 62,000 is entirely incorrect. The plaintiff No. 1 has proved this payment and I accept his statement in that regard. My finding on issue No. 3 is, therefore, in the affirmative.
21. Issue No. 4.‑Nothing was said before me on behalf of the defendants as to how this suit was bad for non‑joinder of parties. I hold that there is no such defect in the suit and answer the issue in the negative.
22. Issues Nos. 5 & 6.‑These issues relate to the form of the suit and to the question whether the plaint discloses any cause of action. It was urged by Mr. Shaikh that since the plaintiffs did not have the possession of the goods they should have prayed for the relief of possession and their suit which was for declaration and injunction was barred by section 42 of the Specific Relief Act. For the same reason it was stated that the plaint did not disclose any cause of action. ' There is no substance in this argument. The goods are in the control of the Customs Authorities who have handed it over to the Karachi Port Trust and the Collector of Customs has himself said in his order Exh. 11 that the option in lieu of confiscation will be allowed to be exercised by the party who may be declared by this Court as the owner of the goods. It was, therefore, enough for the plaintiffs to seek relief which they have sought. 7 he fact that the defendants were admittedly trying to get the goods and had directed the clearing agents to deliver them in their godown on clearance, afforded sufficient cause of action to the plaintiffs. My finding, therefore, on these issues is in the affirmative.
In view of my findings of fact on the first issue, this issue has completely lost its significance. Con sidering that in fact it were the plaintiffs who had indented the goods the fact of payment even if shown against the delivery of documents was merely for the purpose of keeping up the appearance.
From the evidence on record and the circumstances of the case, as found by me on issue No. 1, I am satisfied that the first clearing agent G. H. Wali Muhammad was appointed by the plaintiffs themselves and even the second clearing agent was appointed by them though through the defendants.
The breach of contract alleged by the defendants against the plaintiffs was that they had failed to pay the 40%. of C. & F. value and the L/C charges and the bank expenses. This was stated by Mr. H. A. Sheikh, the learned Advocate for the defendants, on 27‑4‑62. I have said enough on issue No. 1 as to the real nature of the transaction and what was actually paid to the defendants. No such breach, as was stated by the learned counsel for the defendants, was committed by the plaintiffs. My finding on this issue is, therefore, in the negative.
It was urged by Mr. H. A. Sheikh that the contract, Exh. 5, was between the firm of G. A. Ghaffar and the defendants and there is no privity between the latter and the plaintiffs in this suit. Wali Muhammad, P. W. 1, has stated that G. A. Ghaffar was only an assumed name and this was used because the money belonged to plaintiffs 4 and 5, Gul Ahmad and Ghaffar, the nephews of plaintiff No. 2 to whom the money had been entrusted by the nephews for the purpose of profitable investment. The plaintiff No. 2 was thus the trustee of the plaintiffs 4 and 5 and he invested this money into this transaction. This arrangement does not bring about the existence of a partnership between plaintiffs 4 and 5 so as to necessitate its registration under the Partnership Act, the absence of which would render the suit incompetent under section 69 thereof. The plaintiffs joined all the persons who could be said to have any interest in the subject‑matter for the purposes of avoiding any technical objection. I, therefore, answer the issue in the affir mative.
In spite of my finding that the plaintiffs are the importers in fact of the goods and are the owners thereof, I cannot grant them the declaration or the injunction prayed for in the suit, upon the ground that the agreement between them and the defendants is void as I have found on issue No. 1. I, therefore, dismiss the plaintiffs' suit, but as both the parties were in pari delicto, I make no order as to costs.
K. s. A.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer