# Om Prakash Gu1ta v. Tlie Stale of Ufla, Prtkhsh Imam]

- **Citation:** [1955] 2 S.C.R. 402
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeal No. 200 of 1954
- **Bench:** VMAN BosE, Jagannadhadas, Bhuvaneshwar Prasad Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/om-prakash-gu1ta-v-tlie-stale-of-ufla-prtkhsh-imam-1498
- **Pages:** 26

## Headnote

Priv11te International Law-Law applic11ble to contractual obligations-English and Continental schools of thought-Lex situs and
uProper I.Au/' of contract-Partition of India-Post partition debt
-Action for recovery where lies-Analogy of banking transactions and
insurance claims-Place of primary obligatio11-Debt,
whether property-Sections 3 and 130 of Transfer of Property Act-Evacuee property laws-Pakistan (Protection of Evacuee Property)
Ordinance,
1948 (XV/ll of 1948)-Pakistan (Administration of Evacuee Pro·
perty) Ordinance (XV) 1949-Whether confiscatory in nature
During the years
in question cloth was rationed at Lyallpur,
then a part of the Punjab in undivided T ndia, ·and sales could only
be made to government nominees and other authorised persons. The
plaintiffs rcsii!cnt in Lyallpur, were the government nominees. The
2S.C.R.
SUPREME" COURT REPORTS
40.3
defendant company with its. head office at . Delhi, had a branch
office and mills at Lyallpur, and supplied the plaintiffs with cloth
from time to time in accordance with the government quota through
its branch manager at Lyallpur. Their dealings lasted some 4 or 5
years prior to 1947.
In. accordance with their ~ontract the plaintiffs left a security
deposit of Rs. 1,000 with the defendant's branch manager at Lyallpu1,
aud deposited further sums of money with him from time to time at
Lyallpur. The defendant supplied the plaintiffs with their quota of
doth against those deposits.
There was thus a running account
between the parties in which the balance was sometimes in the
plaintiffs' favour and sometimes
against them; when against, they
paid the defendant interest on the "overdraft". The goods had to
be supplied at Lyallpur and all moneys were paid there. The ac.·
counts
were kept at
Lyallpur though copies were sent
to the
defendant's head office at Delhi.
In 1947, when India was partitic.ned, Lyallpur was assigned to
Paki~tan. The plaintiffs thereupon
Red the country and entered
India as refugees. They settled in Delhi and thus became "evacuees"
according to a Pakistan ordinance. At that time there was a balance
of Rs. 11,496-6-6 in the plaintiffs favour. They accordingly made a
demand at Delhi for repayment of this sum and for return of their
security deposit.
In the meanwhile the Pakistan Government issued an Ordinance
(1) vesting all evacuee property in the Custodian of Evacuee Property in Pakistan ; (2) prohibiting the payment of money to evacuees; and (3) requiring
all moneys payable
to, or claimable by,
evacuees to be paid to the Deputy Custodian of Evacuee Property in
Pakistan. Payments so made were
to operate as a discharge from
further liability to the extent of the payment. Breach of this law
was punishable as an offence.
The Deputy Custodian demanded payment from the defendant
of the moneys owing to the plaintiff. After some
correspondence
and demur, the payment was
made
as required. The- defendant
pleaded this as a defence to the action.
1I dd : (I) Lyallpur was the place of primary obligation because
under the contract the balance remaining at its termination was to
be paid there and not elsewhere, accordingly the demand for payment made at Delhi before a demand and refusal at Lyallpur \\'a';
inelfocti\·e;
(2) That
the
elements out of
which the .contract to p~y
arose were most densely grouped at Lyallpur, so Lyallpur was tne
natural scat of the contract and
the place with which it had its
closest and most real
connection. Accordingly,
the
"proper law
of the contract" was the Lyallpur Law;
(3) Under the English doctrine also the situs of the debt was
Lyallpur; and so
1955
Tire Dtlhi Cloth
and GtnMal Mills
Co. [Jd.
v.
Harnam Singh
and other1
1955
Th• D,lhi Cloth
anJ GtNTal Mills
Co. Ltd.
v.
Harnam Singh
and otMrJ
SUPREME COURT REPORTS
[1955]
(4) either way, the Lyallpur law applied
( 5) as it obtained at Lyallpur at the time when performance
'vas due because a upropcr law" intended as a whole to govern a
contract
is administcrCd as a "living and changing body

## Text

_Characters 0–39,617 of 56,834. This is a partial read: ask again with offset=39617 for what follows._

1955
Om Prakash Gu1ta
v.
Tlie Stale of Ufla,
Prtkhsh
Imam].
1955
April 21
SUPREME OOURT REPORTS
[1955)
dismissal and that he has been paid subsistence allowance for the entire period. Such . subsistence allowance as has been paid to the appellant from the 25th
of November, 1944, to the 31st December, 1947, inclusive,
must,
thertfore,
be credited to the respondent
and
the same must be adjusted
against the salary
claimed by the appellant.
A decree will accordingly
be prepared stating the amount recoverable by the
appellant.
The appellant was permitted to appeal in
forma
pauperis.
As he has succeeded in the appeal, the
Registrar shall calculate the amount of court fee which
would have been paid by the appellant ;f he had not
been allowed to appeal as a pauper and incorporate
it in the decree.
The court fee shall be paid by the
appellant and the same will be recoverable by the
Government of India from him and shall be the first
charge on the amount decreed to him.
Under Rule 7
of Order XIV of the Rules of this Court, the appellant will be allowed the fees paid by him to his Advocates, in the taxation of costs.
THE DELHI CLOTH AND GENERAL MILLS
CO., LTD.
ti.
HARNAM SINGH AND OTHERS.
(VMAN BosE, JAGANNADHADAS and BHUVANESHWAR
PRASAD SINHA, JJ.)
Priv11te International Law-Law applic11ble to contractual obligations-English and Continental schools of thought-Lex situs and
uProper I.Au/' of contract-Partition of India-Post partition debt
-Action for recovery where lies-Analogy of banking transactions and
insurance claims-Place of primary obligatio11-Debt,
whether property-Sections 3 and 130 of Transfer of Property Act-Evacuee property laws-Pakistan (Protection of Evacuee Property)
Ordinance,
1948 (XV/ll of 1948)-Pakistan (Administration of Evacuee Pro·
perty) Ordinance (XV) 1949-Whether confiscatory in nature
During the years
in question cloth was rationed at Lyallpur,
then a part of the Punjab in undivided T ndia, ·and sales could only
be made to government nominees and other authorised persons. The
plaintiffs rcsii!cnt in Lyallpur, were the government nominees. The
2S.C.R.
SUPREME" COURT REPORTS
40.3
defendant company with its. head office at . Delhi, had a branch
office and mills at Lyallpur, and supplied the plaintiffs with cloth
from time to time in accordance with the government quota through
its branch manager at Lyallpur. Their dealings lasted some 4 or 5
years prior to 1947.
In. accordance with their ~ontract the plaintiffs left a security
deposit of Rs. 1,000 with the defendant's branch manager at Lyallpu1,
aud deposited further sums of money with him from time to time at
Lyallpur. The defendant supplied the plaintiffs with their quota of
doth against those deposits.
There was thus a running account
between the parties in which the balance was sometimes in the
plaintiffs' favour and sometimes
against them; when against, they
paid the defendant interest on the "overdraft". The goods had to
be supplied at Lyallpur and all moneys were paid there. The ac.·
counts
were kept at
Lyallpur though copies were sent
to the
defendant's head office at Delhi.
In 1947, when India was partitic.ned, Lyallpur was assigned to
Paki~tan. The plaintiffs thereupon
Red the country and entered
India as refugees. They settled in Delhi and thus became "evacuees"
according to a Pakistan ordinance. At that time there was a balance
of Rs. 11,496-6-6 in the plaintiffs favour. They accordingly made a
demand at Delhi for repayment of this sum and for return of their
security deposit.
In the meanwhile the Pakistan Government issued an Ordinance
(1) vesting all evacuee property in the Custodian of Evacuee Property in Pakistan ; (2) prohibiting the payment of money to evacuees; and (3) requiring
all moneys payable
to, or claimable by,
evacuees to be paid to the Deputy Custodian of Evacuee Property in
Pakistan. Payments so made were
to operate as a discharge from
further liability to the extent of the payment. Breach of this law
was punishable as an offence.
The Deputy Custodian demanded payment from the defendant
of the moneys owing to the plaintiff. After some
correspondence
and demur, the payment was
made
as required. The- defendant
pleaded this as a defence to the action.
1I dd : (I) Lyallpur was the place of primary obligation because
under the contract the balance remaining at its termination was to
be paid there and not elsewhere, accordingly the demand for payment made at Delhi before a demand and refusal at Lyallpur \\'a';
inelfocti\·e;
(2) That
the
elements out of
which the .contract to p~y
arose were most densely grouped at Lyallpur, so Lyallpur was tne
natural scat of the contract and
the place with which it had its
closest and most real
connection. Accordingly,
the
"proper law
of the contract" was the Lyallpur Law;
(3) Under the English doctrine also the situs of the debt was
Lyallpur; and so
1955
Tire Dtlhi Cloth
and GtnMal Mills
Co. [Jd.
v.
Harnam Singh
and other1
1955
Th• D,lhi Cloth
anJ GtNTal Mills
Co. Ltd.
v.
Harnam Singh
and otMrJ
SUPREME COURT REPORTS
[1955]
(4) either way, the Lyallpur law applied
( 5) as it obtained at Lyallpur at the time when performance
'vas due because a upropcr law" intended as a whole to govern a
contract
is administcrCd as a "living and changing body of law",
accordingly, effect is given to any changes occurring in it before
pcrformancse is due;
( 6) a "debt" being a chose in action is "property" within the
meaning of the Pakistan Ordinance and so,
(7) the money was rightly paid to the Deputy Custodian and
that operated as a good discharge and exonerated the defendant
from further liability.
But quaere whether different conditions would not, arise in a
case where no payment is made and the defendant has no garnishable
assets in Pakistan out of which the West Punjab Government could
realise the debt out of the defendant's property there.
( 8) The provisions of the Pakistan ordinance relevant to the
case al!' not opposed to the public policy of India and so can be
relied on as a defence to an action of this nature.
Appeal Allowed.
Mount Albert Borough Council v. Australasian Temperance, etc.
(1938 A.C. 224), Bonython v. Commonwealth of Australia (1951 A.C.
201 at 219), Bank of Travancore v. Dhirt Ram (69 I.A. I at 8), New
York Life [nsurance v. Public Trustee ([1924] 2 Ch. IOI at 119),
Rex v. Lovitt (1912 A.C. 212), /oachinsons v. Swiss Bank Corporation
([1921] 3. K.B. 110), Arab Bank v. Barclays Bank (1954 A.C. 4~5
at 531), Fouad Bishara v.
State of Israel ([1954]
I A.E.R. 145),
Re Chesterman's Trusts ((1923] 2 Ch. 466 at 478), Re Banque Des
Marchands De Moscou ([1954] 2 A.E.R. 746), Odwin v. Forbes (1817
Buck 57) and Re. Munster ([1920] I Ch. 268), rcterred to.
CIVIL
APPELLATE
JURISDICTION :
Civil
Appeal
No. 200 of 1954.
Under Article 133 of the Constitution and section
109 of the Code of Civil Procedure from the Judgment
and decree date<l the 6th December 1952, of the Circuit Bench of the Punjab High Court at Delhi (Weston
C.J. and Bhandari ).) in Regular First Appeal No. 72
of
1952, arising out of the ) udgment and Decree
dated the 14th
Day of April 1952, of the Court of
Subordinate Judge, Delhi in Suit No. 657 of 1950.
N.
C.
Chatterjee,
(Tarachand
Brijmohan/al
and
B.
1'.
Maheshwari, with him)
for the Appellant.
R. S. Naru/a, for the Respondent.
2 S.C.R.
SUPREME COURT REPORTS
1955.
April 21.
The
Judgment
of
the Court
was delivered by
Bos}. J .-The defendant appeals.
The plaintiffs were the partners of a firm known as
Harnam Singh Jagat Singh.
Before the partition of
India they carried on the business of cotton cloth
dealers at Lyallpur which is
now in Pakistan.
The defendant is the Delhi Cloth and General Mills
Co. Ltd.
It is a registered company carrying
on
business at Delhi and other places and has its head
office at Delhi.
One of the places at which it carried
on business before the partition was Lyallpur.
The plaintiffs' case is that they carried on business
with the defendant company for some three or £om
years before 1947 and purchased cloth from the company from time to time. In the course of their business
they used to make lump sum payments to the defendant against their purchases.
Sometimes these were
advance payments and
at others
the balance was
against them.
When there was an adverse balance
the plaintiffs paid
the defendant interest: see the
plaintiff Sardari Lal as P. W. 3.
On 28-7-1947 the account stood in the plaintiffs'
favour. There was a balance of Rs. 79-6-6 lying to
their credit plus a deposit of Rs. 1,000 as security. On
tha~ day they deposited
a further
Rs. 55,000 bringing
the balance in their favour up to Rs. 56,079-6-6.
The defendant company delivered
cloth worth Rs.
43583-0-0 to the plaintiffs against this amount
at or
about that time. That left a balance of Rs. 11,496-6-6.
The suit is to recover this balance plus interest.
The claim was decreed for
Rs. 12,496-6-6 and this
was uoheld on appeal to the High Court.
The defendant appeals here.
The defendant admits the facts
set out above
but
defends the action on the following ground. It contends that when India was partitioned on 15-8-1947,
Lyallpur,
where
these
transactions
took
place
and
where the money is situate, was assigned to Pakistan.
The plaintiffs fled
to India at this
time and thus
1955
T/16 Delhi Cloth
and General Mills
Co. Ltd.
v.
HamamSingh
and others
1955
The Delhi Cloth
and Gmeral Mills
Co. l.Jd.
v.
Htm1am Singh
and others
Bost].
SUPREME COURT REPORTS
[1955]
became evacuees and the Pakistan Government froze
all evacuee assets and later compelled the defendant
to hand them over to the Custodian of Evacuee
Property in Pakistan.
The defendant is ready and willing to pay the money if the Pakistan Government
will release it
but until it does so the defendant contends that it is unable to pay and is not liable.
The
only question is, what are the rights and liabilities of
the parties
in
those circumstances? The
amount involved in this
suit, though substantial, is not large
when compared with the number of claims by and
against persons
in similar plight.
The defendant itself
is involved
in many simllar transactions. A list
of them appears in Ex. D-11.
Mohd Bashir Khan,
D. W. I, says that
the total comes to Rs. 1,46,209-1-9.
The defendant has accordingly chosen to defend this
action as a test case.
The further facts are as follows. At the relevant
period, before the partition, cloth was retained
and
its distribution controlled in, among other places, the
Punjab where Lyallpur is situate. According to the
scheme, quotas
were allotted to different areas and
the manufacturers and
suppliers of cloth could only
distribute their cloth to retailers in accordance with
those quotas, and dealers in those areas could only
import cloth up to and in accordance with the quotas
allotted to them.
If the suppliers themselves
had a
retail shop or business in a given area, then the qurita
for that area was divided between the supplier and a
Government quota-holder
or quota-holders
called
the
nominated importer or importers. The local agency
of the suppliers was permitted to import up to the
portion of the quota allotted to it in that area and
the suppliers were obliged
to give the balance of the
quota to the Government quota-holder or
holclers.
The plaintiffs were the Government quota-holders for
Lyallpur and the defendant company also carried on
business there through the General Manager of the
Lyallpur Mills.
It is admitted that the defendant owns these mills
but it is a matter of dispute before us whether the
mills are a branch of the defendant company; but
2S.C.R.
SUPREME COURT REPORTS
4rf/
whatever the exact
status of the Lyallpur mills may
be,
it is clear from
the evidence and
the documents
that the General Manager of
these
mills conducted
the defendant's cotton business at Lyallpur.
It seems
that the deails
of the cloth distribution
scheme
for
Punjab, in so far as it affected the defendant company, were contained in a letter of the
24th October
1945 from
the Secretary, Civil Supplies
Department, Punjab.
That letter has not been filed
and so we do not know its exact contents but reference
to it is found in a series of letters written by the defendant company from Delhi to the District Magistrate at Lyallpur.
Those letters range in date
from
3-1-1946 to 19-4-1947:
(Exs. P-5 to P-12).
They are
all
in
the same
form, only the figures' and dates
differ.
It wiil be enough to quote the first, Ex. P-5.
It is dated 3-1-1946 and
is from the Central Marketing Organisation of the defendant company, the Delhi
Cloth and General Mills Co. Ltd. It is written from
Delhi to the District
Magistrate, Lyallpur, and
is as
follows:
"The District Magistrate,
Lyallpur.
Re: Cloth Distribution Scheme.
Dear Sir
Ref: Letttr No. 15841-CL-(D)-45/8342 of
24th Oct. 1945 from Secretary, Civil Supplies Deptt., Punjab Govt., Lahore.
Kindly note that we have allotted 28 bales for your
district for the month of January
1946.
Out of this
a quantity of 18 bales will be despatched to our Retail
stores in your district/State and
the balance of 10
bales will be available for delivery to your nominated
importer.
We shall be. obliged if you kindly issue instructions
to
your
nominated
importer to
collect
these
goods from us within 15 <lays of the two dates for
delivery fixed,
namely by the 20th of January and
5th of February
1946 respectively. It may be noted
that th~ first half quota will lapse in case delivery is
1955
The Delhi Cloth
and General Mills
Co. I.Jc!.
v.
Hamam Sing;,
and others
Bose].
1955
The Delhi Cloth
and General Mills
Co. lid.
v.
Harnam Sin,gh
and olhers
Bose].
SUPREME COURT REPORTS
[195~]
not taken by you by the former date and the second
half will lapse if not taken by the latter date.
Yours faithfully,
,D.C. & Gen. Mills Co., Ltd."
In each case a copy was sent to the plaintiffs marked
as follows:
"Copy to nominated imported:-
Jagat Singh Harnam Singh,
Cloth Merchants,
Lyallpur".
The Indian Independence Act, 1947 was passed on
18-7-1947 and the disrict of Lyallpur was assigned to
Pakistan subject to the award of the Boundary Commission. Then followed
the partition on
15-8-1947
and at or about that time the plaintiffs fled to India.
This made them evacuees according to a later Ordinance.
But before that Ordinance was
promulgated
the Assistant Director of Civil Supplies, who was also
an Under Secretary to the West Punjab Government,
wrote to the defendant's General Manager at Lyallpur
(the General Manager of the Lyallpur Cloth Mills) on
17-2-1948 and told him that-
"The amount deposited by the non-Muslim dealers
should not be refunded to them till further orders".
(Ex. D-1).
The defendant did all it could, short of litigation, to
protest this order and to try and get it set aside. Its
General Manager at Lyallpur wrote letters to
the
Assistant Director of Civil Supplies on 14-4-48, 9-8-48
(Exs. D-2 and D-4), 23-4-49 (Ex. D-7) and 6-6-49 (ExD-8), but the replies were unfavourable.
On 30-4-48
the Assistant Director said that "in no case"
should
the sums be refunded (Ex. D-3) and on 1-11-48 directed that these amounts should be deposited with the
Custodian of Evacuee Property (Ex. D-5).
This was
in accordance with an Ordinance which was then in
force.
Later, on 8-11-48, the General Manager received orders from the Deputy Custodian that the
moneys should be deposited with
the Deputy
Custodian (Ex. D-6)
and
on 23-6-49 these orders were
repeated by the Custodian (Ex. D-9).
Meanwhile, the plaintiffs, who by thm had shifted
2S.C.R.
SUPREME COURT REPORTS
409
to Delhi, made
a series
of demands on the defendant
in Delhi for payment.
These are
dated 3-1-49 (Ex.
P. W. 4/4), 27-1-49
(Ex. P.W. 4/1), 11-3-49
(Ex. P.W.
4/3) and 26-3-49
(Ex. P. W. 4/2).
The defendant's
attitude
i> summed up in its letter to the plaintiffs
dated 12-2-49 (Ex. P-3).
The defendant
said that it
had received
orders
from the West Punjab Government,
through
the
Assistant
Director of Civil Supplies,
not
to make
any refunds without the orders of
the West Punjab Government.
On 15-10-1949 the Ordinance of 1948 was replaced
by • Ordinance No. XV of 1949
(Ex. D-26)
but that
made no difference to the law about evacuee funds
and properties.
On 4-7-1950 the plaintiffs served the defendant with
notice of suit (Ex. P-14). This notice was forwarded
to
the defendant's General Manager
at Lyallpur
by
the defendant's Managing Director in Delhi urging
the General Manager to try and obtain the sanction of
the West Punjab Government for
payment of
the
money to the plaintiffs; and on 27-7-1950 the defendant
wrote to the plaintiffs saying-
"We confirm that the sum of Rs.
11,496-6-6 and
Rs· 1,000 are due to you on account of your advance
deposit
and security deposit respectively
with our
Lyallpur Cotton Mills, Lyallpur, and the sum will be
refunded
to you by the said
Mills
as soon as order
of prohibition to refund such deposits issued by the
West Punjab Government and served upon the said
Mills is withdrawn or cancelled, and that your claim
shall not be prejudiced by the usual time limit of three
years having been exceeded". (Ex. P-4).
The defendant's reply did not satisfy the plaintiffs,
so they instituted the present suit on 16-12-1950.
After the suit, the defendant's Managing Director
wrote personally to the Joint Secretary to the Government of Pakistan on 2-4-1951
but was told on
21-4-1951 that
the matter had been carefully examined
and that the money must be deposited with the Custodian (Ex. D-25).
A second
attempt was made on
30-4-1951 (Ex.
D-24)
and the
Joint Secretary was
again
approached.
Soon after,
an
Extraordinary
8-83 S. C. India/59
1955
The Delhi Cloth
and General Mills
OJ. Ltd.
v.
HamamSingh
and others
Bm].
1955
Th< Delhi Cloth
and General Mills
Co. Ltd.
v.
Harnam Singh
and others
410
SUPREME COURT REPORTS
[1955]
Ordinance was promulgated on 9-5-1951
(Ex. D-27)
exempting "cash deposits of individuals in
banks"
from the operation of the main Ordinance.
But the
Joint Secretary wrote on 2-6-1951
that this did not
apply to private debts and deposits and again asked
the defendant to deposit
the money
with the Custodian (Ex. D-23).
Finally, the Custodian issued
a.n
order on 6-11-1951
directing that the deposits be made
by the 15th of that month, "failing which legal action
will have to be taken against you".
(Ex. D-10). The
money was deposited on 15-11-1951 on the last day of
grace (Ex· D-12).
The first question that we must determine is
the
exact nature of
the contract from which the obligation which the plaintiffs seek to enforce arises.
The
sum claimed in the suit, aside from the interest, is
made up of three items :
( 1) Rs.
79-6-6
outstanding
from
a prev10us
account;
(2) Rs. 11,496-6-6 being the balance of a sum of
Rs. 55,000 deposited on 28-7-1947; and
(3) Rs. 1,000 as security.
The three items appear to be linked up but we will,
for the moment, concentrate on the largest, the deposit
of Rs. 55,000.
Both
sides have spoken of it as a
"deposit" throughout but we will have to examine its
exact nature because deposits are of various kinds and
it
will
be necessary to know which sort this was before we can apply the law.
Unfortunately, the evidence is meagre and scrappy,
so we have been obliged to piece much disjointed mattrial together to form
an intelligible pattern.
It is
admitted that the distribution of cloth in this area
was controlled by the Government of Punjab
(in
undivided India)
at all material
times.
It is
also
admitted
that
the plaintiffs were, what were called
"Government nominees" for Lyallpur.
In the plaint
the
plaintiffs also called
themselves
the
"reserve
dealer".
This term has not been explained but the
use of these words and the words "nominated importer'', indicates that the plaintiffs occupied a privileged position.
The letters (Exs. P-5 to P-12), on
2 S.C.R.
SUPREME COURT REPORTS
411
which the plaintiffs relied very strongly, also point to
that; Ex. P-5, for example, shows
that the defendant
was obliged
to give 10 bales out of a quota of 28 for
that area to the plaintiffs under the orders of the
Punjab Government and
could only
keep 18 for its
own retail stores in the month of January
1946. In
April the defendant was allowed to keep all 28 but in
July the distribution was
35 : 25 in the plaintiff's
favour.
In September, November
(1946)
and April
1947 it was half and half.
In February and March
1947 it was 10 : 26 and 29 : 26
for
the plaintiffs and
the defendant's stores respectively.
Now, ordinarily, a privilege has to be paid for and it
seems that the price of this privilege was (1) payment
of a security deposit of Rs. 1,000 and
(2)
payment
of a second deposit against which cloth was issued
from time to time in much the same way as a banker
hands out money to a customer
against deposits
of
money in a current account, only here the payments
were issues of cloth instead of sums of money. We
draw this inference from what we have said abovt
and from the following facts:
(1) Both sides have called the payment a "deposit"
in their pleadings;
(2) The plaintiffs speak of receiving goods "against
this deposit"
(paragraph 3 of the plaint) and Mohd.
Bashir Khan (D. W. 1) of delivery being made "against
this advance";
(3) The plaintiff Sardari Lal (P. W. 3) says that
the parties have been carrying on dealings for 3 or 4
years and that "advances used to be macie to the
mills from time to time. Sometimes our balance stood
at credit";
(4) Sardari Lal says
that when their balance was
on the debit side, they paid the defendant's interest
but defendant paid
no interest when the
balance
was in the plaintiffs' favour. (This is
the position
when there is an overdraft in a bank) ;
(5) There was a balance of Rs. 79-6-6 standing in
the plaintiffs' favour when the deposit of Rs. 55,000
was made;
(6) The plaintiffs said in their letter (Ex. P. W. 4/1)
1955
The Delhi Cloth
and Genlral Mills
Co. Ltd.
v.
HamamSingh
and olhtrl
1955
The D1lhi Cloth
and General Mills
Co. Lid.
v.
HamamSingh
and othlrs
&se].
412
SUPREME COURT REPORTS
[1955J
to the defendant that they had a "current account"
with the defendant in which a sum of Rs. 11,496-6-6
was in "reserve account".
This figure of Rs. 11,496-6-6
is made up by including the old balance of Rs. 79-6-6
in this account;
(7) In their letter Ex. P-14 the plaintiffs said that
they had "deposited" money in the plaintiffs' account
at Lyallpur "as reserve dealers", against that they
received goods
leaving
a balance
of
Rs.
11,496-6-6.
Again, this figure includes Rs. 79-6-6.
All tJiis shows that the payment of Rs. 55,000 was
not just an advance
payment for a specified quantity
of goods but
was a running account very like a customer's current account in a bank.
The only matter
that can be said to indicate the contrary is the fact
that
the defendant has
listed
this 1 money in Ex.
D 11
under the head "Purchaser's\:._ advance"~-:-
But
the . -mere use;o£. this term cannot alter the substa~ce
of the trarisa~ons - any more than the mere use of
the. word "deposit". The fact that the parties choose
to call it this or that is; of course, relevant but is not
conclusive, and in order to determine the true nature
of a transaction it is necessary to view it as a whole
.and to consider other factors.
But in
this case we
need not speculate because the plaintiffs have themselves ' "!<plained
the sense in which the term "Purchasers advance account" is used. In their statement
of the case whieh · they filed here, they say-
"The defendants
maintained a 'Purchasers
advance account'
in their books at Delhi. The plaintiffs
used to pay the defendants advance amounts against
which cloth was supplied and the balance had to be adjusted periodically".
But the banking analogy must not
be pushed too
far.
The stress laid by the parties on the terms
"Government
nominees'', "nominated importer''
and
"reserve dealer", both in the
correspondence and in
the pleadings and evidence, suggests that the defendant was dealing with the plaintiffs in their capacity
of "Government nominees"
and
that, in . its
turn,
imports the condition that the dealings would stop
the moment the plaintiffs ceased
to occupy
that pri-
2 S.C.R.
SUPREME COURT REPORTS
413
vileged position.
As we · have seen, the import of
cloth was controlled
by
the Punjab Government at
all relevant times
with the result that the defendant
could not sell to anybody it pleased.
The salr.s had
to be to the Government nominees.
Therefore, if
Government withdrew their recognition, the defendant
would not have been able to sell to the plaintiffs any
longer and it is fair to assume that the parties · did
not contemplate a continuance of their relationship
in such an eventuality.
But, as this was not a definite
contract for the supply of a given quantity of goods
which were to be delivered in instalments but a course
of dealings with a running account, it is also reasonable to infer that the parties were at
liberty
to put
an end to their business relationship at any time they
pleased by giving due notice to the other side and in
that event whichever side
owed money to the other
Would have to pay. But, either way, the place of performance
would, in these circumstances,
be Lyallpur.
We say this because all the known factors were situate
in Lyallpur. The plaintiffs were the Government nominees
for Lyallpur and they were resident there. The
defendant carried oh business there and the goods had
to be delivered at Lyallpur and could not be delivered
elsewhere, and so performance was to be there. The
accounts were kept at Lyallpur, and though copies
appear to have been forwarded to Delhi from time to
time, the books
were situate there and the
Lyallpur
office
would be the only place
to know the up-tothe minute state
of
the accounts.
In the
circumstances,
it is reasonable to assume, as in
the case
of
banking and insurance
(matters we shall
deal with
presently),
that on the
termination of the
contract
the balance
was to be paid at Lyallpur
and not elsewhere.
That localises the place of primary obligation.
This also, in our opinion, imports another factor.
The defendant in Delhi would not necessarily know
of any
change of recognition
by the Lyallpur authorities.
The correspondence with the
Collector indicates that the Government nominee cleared the goods
from the defendant's
Lyallpur godowns under the
<
orders of the District Magistrate.
If, therefore, the
1955
Thi Delhi Cloth
and Gaural Milli
Co. l.Jd.
v.
Hatn1Jm Singh
and othtts
BOii J.
1955
The Iklhi Cloth
and Genr.al Mills
Co. Lid.
v.
Harnam Singh
anti othtrJ
Bose].
414
SUPREME COURT REPORTS
[1955]
nominee was suddenly changed, intimation of this fact
would have to be given to the defendant
at Lyallpur
and not at Delhi, otherwise there would be a time lag in
which
the
defendant's Lyallpur
office might easily
deliver the
goods
to
the plaintiffs as usual despite
withdrawal
of the recognition.
Everything
therefore
points to
the fact that
the notice
of
termination
would have to be given at Lyallpur and the obligation
to return the balance would not arise until this notice
of termination
was
received.
That obligation would
therefore necessarily arise at Lyallpur.
The plaintiff's learned counsel argued very strongly
that
the· defendant's
Lyallpur business
was
carried
on from Delhi
and that the accounts were kept there,
that there was no branch office at Lyallpur
and that
Lyallpur had no independent local control of the business. He relied
on the letters written by the defendant
to the District Magistrate, Lyallpur,
about
the
allotments of quotas (Exs. P-5 to P-12) and also on Ex. D·7,
a letter written by
the defendant's
General Manager
at Lyallpur
to
the Deputy
Custodian of Evacuee
Property at Lyallpur in which he say that a
"complete list
showing' the list of all non-Muslims
falling under item (3) with the amount to be paid has
been asked for from
our Head Office and will be submitted as soon as received".
Counsel contended
that the Lyallpur people
had so
little to do with the accounts that they were not able
to supply even a list of the persons
who dealt with
them. They had to find that out from Delhi.
These matters should have been put to the defendant's witnesses.
Ex. D-7 was
written in reply to
a
letter from the
Deputy
Custodian of
Evacuee
Property.
That
letter
is Ex. D-6 and in it the Deputy
Custodian
refers to some earlier correspondence with
the Under Secretary to the West Punjab Government,
Lahore, which has not been filed. When we turn ro
the list that was
eventually supplied from Delhi (Ex.
D-11) we fin• t that it relates to accounts from all over
Pakistan
such as,
Multan,
Peshawar, Lahore, Sialkot,
Rawalpindi and even Karachi and Sukkar. Obviously,
a local office like the Lyallpur office would not be in
2S.C.R.
SUPREME COURT REPORTS
415
a pos11:1on to supply that sort of information.
The
defendant's
accountant
at
Lyallpur,
Sewa
Ram
(P. W. 4), says that--
"Purchasers'
deposits
at Lyallpur
were not recorded in the books of the defendant at Delhi but
statements used to be despatched from there to Delhi.
An
account
book
was prepared from
statements
received from Lyallpur.
That book is known as
'Reference Book'".
Presumably, that
would also be the practice of the
other branch
offices, so the head office would be the
only place from where a general overall picture (which
appears to be what was asked for) could be obtained.
Now, the plaintiffs resided at Lyallpur at all relevant times and the defendant carried on business
there through a local
General Manager. We do not
know where the contract was made but we do know
that the plaintiff's contracted
in a special capacity
that was localised at Lyallpur, namely as the Government nominees for Lyallpur.
We know
that the
goods were to be delivered at Lyallpur and could not
be delivered anywhere else. We know that there was a
running account and that that accom;1t
was
kept at
Lyallpur, and we have held that the "debt" did not
become due till the defendant was given notice at
Lyallpur that the business relationship between the
parties had terminated. The termination came about
because of acts that arose at Lyallpur, namely the
assignment of Lyallpur to the newly
created State of
Pakistan and the flight of the plaintiffs from Lyallpur
which made further performance of the primary contract impossible.
The only factors that do not concern Lyallpur are the defendant's residence in India
and the demands for payment made in Delhi.
The
fact of demand is not material because the obligation
to pay arose at the date of termination and arose at
Lyallpur, but if a demand for payment is essential
then it would, along the lines of the banking and
insurance cases to which we shall refer later, have to
be made at Lyallpur and a demand made elsewhere
would be ineffective.
On these facts we hold that the
clements of this contract, that is to say, the contract
1955
The Delhi Cloth
and General Mills
Co. Ltd.
v.
Harnam Singh
and others
Bose].
1955
The Delhi Cloth
and General Mills
Co. Ltd.
v.
Harnam Sinz'i
and otherJ
Bose].
416
SUPREME COURT REPORTS
[1955]
out of which the obligation to pay arose, were most
densely
grouped at Lyallpur and
that that was
its
natural seat and the place with which the transaction
had its closest and most real connection.
It follows
from this that the "proper law of the contract", in
so far as that is material, was the Lyallpur law.
We have next to see when notice to close the account and
a demand for return of the balance was
made and where. The plaintiff Jagat Singh (P. W. 5)
says that he made a written demand in October 1947.
But the earliest demand we have on record
is
Ex.
P.W. 4/4 dated 3-1-1949.
It is understandable that
the plaintiffs, who had to flee for their lives would
have
no
copies
of their correspondence, but it is a
matter for
comment that the demand which is filed
(Ex. P.W. 4/4) does not refer to an earlier demand or
demands. The defendant was
asked to produce
all
the correspondence because the plaintiffs had lost their
own files.
The defendant produced all we have on
record and no suggestion was
made that anything had
been suppressed. Consequently we are not prepared
to accept the plaintiffs' statement and we hold that
there was no demand before 3-1-1949.
Another point is that the earlier demand, even if
made, could not have been made at Lyallpur. The
plaintiff Jagat Singh says he made the demand to the
defendant's Managing Director.
He resides in Delhi
and the plaintiffs had by
then fled
from
Pakistan.
Therefore, Jhe demand could not have been made at
l yallpur, and "apart frqm those demands, there is no
other notice of termination, so technically,
the defendant would have been justified in declining to pay
on the strength of a demand made in Delhi. The same
'defect attaches
to Ex. P.W. 4/4.
However, we are
fortunately absolved from the need to base on so
technic!al a ground.
Now at the date Qf the demand the Pakistan Ordinance (Ex. D-26) was in force and under it the defendant was prohibited from paying the money to the
plaintiffs who
were evacuees according to Pakistan
laws. The defendant was directed, instead, to deposit
the money with the Deputy Custodian of Evacuee
2 S.C.R.
SUPREME COURT REPORTS
417
Property.
This was done on 15-11-1951 (Ex. D-12)
and the deposit was made along with other similar
deposits.
We now have to determine the legal liabilities
which arise out of these facts.·
This raises complex
questions of private international law, and two distinct lines of thought emerge. One is that applied by
the English Courts, namely, the lex situs; the other
is the one favoured by Cheshire in. his book on Private
International Law, namely,
the "proper law of the
contract".
The English approach is to treat the debt as property and determine its situs and then, in general, to
apply the law that obtains there at the date when
payment is due.
But the difficulty of the English
view is that they have different sets of rules for ascertaining' the situs, with the result that the situs shifts
from place to place for different purposes, also that
it is determined
by intention.
Thus, it can be in one
place
for
purposes
of jurisdiction and in others for
those of banking, insurance, death duties and probate.
The situs also varies in the cases
of
simple contract
debts and those of speciality.
That a debt is property is, we think, clear. It is
a chose in action and is heritable and assignable and
it is treated as property in India under the Transfer
of Property Act which, calls it an "actionable claim":
section 3 and 130.
But to give
it position in space
is not easy
because
it is
intangible and so cannot
have location except notionally and in order to give
it notional position
rules
have
to be
framed
along
arbitrary lines.
Cheshire points out in his book on Private International Law, 4th edition, pages 449 to 451 that the
situs rule is not logical and leads to practical difficulties when there is a succession of assignments because it is not possible to fix the situation of a debt
under the situs rule in one place and only one place.
Speaking of that Cheshire, quoting Foote, where Foote
says that the assignment of a chose in action arising
out of a contract is governed by the "proper law of
the contract" paraphrases Foote thus at page 4501955
The Delhi Cloth
and General Mills
Co. Ltd.
v.
HamamSfogh
and oth~s
BoseJ.
1955
TM Delhi a.th
and C-aJ Mills
Co. lid.
v.
Harnam Singh
and others
Bose].
418
SUPREME COURT REPORTS
(1955]
"If we
understand him correctly,
the
appropriate
law is not the 'proper law' (using that expression in
its
contractual
sense)
of
the assignment, but the
proper law of the original transaction out of which the
chose in action arose. ·It is reasonable and logical to
refer most questions relating to a debt to the transaction in which it has its source and to the legal system
which governs that transaction ... . One undeniable merit
of this is that, where there have been assignments m
different countries, no confusion can arise from
a
conflict of laws, since all questions are referred to a
single legal system".
The expression the "proper law of the contract" has
been carefully analysed by Cheshire in Cha pt er VIII
of his book. In Mount Albert Borough Council v.
Australasian
Temperance
and
General Mutual
Life
Assurance Society (1 ) Lord Wright defined
it at page
240 as
"that law which the English or other Court is to
apply
m determining
the obligations under
the
contract",
that is. to say, obligation as contrasted with performance.
Lord
Wright drew
the
distinction between
obligation and performance at page 240. In a later
case. Lord Simonds described it as
"the system of law by reference to which the contract was made or that with which the transaction
has it~ closest and most real connexion". Bonython v.
Commonwealth of Australia(').
Cheshire sets out the definition given by some
American Courts at page 203 and adopts it:
"It is submitted that, at any rate with regard
to
the question of valid creation, the proper law is the
law of the country in which the contract is
localized.
Its localization will be indicated by what may be
called
the grouping of its elements as reflected in ·its
formation
and in its terms. The country in which its
elements are most densely grouped will represent
its
natural seat .... the country with which the contract
is in fact most substantially associated and
in which
lies its natural seat or centre of gravity".
(I) 1938 A. C. 224.
(2) 1951 A. C. 201, 219.
2S.C.R.
SUPREME COURT REPORTS
419
This involves two considerations. The first is whether the proper law is to be ascertained objectively
or whether parties are free to fix it subjectively by
ranging over the world and picking out whatever laws
they like from any part of the globe and agreeing
that those laws shall govern their contract.
Cheshire
points out at page
202 that "the subjective theory
may produce strangely unrealistic results."
It is also
obvious that difficulties will
arise if the contract is
illegal or against public policy according to the laws
of the country in which it is sought to be enforced
though lawful according to the laws . of the country
which the parties choose: see Lord Wright in Mount
Albert Borough Council v. Australasian Temperance, etc.
Society( 1 ) at page 240.
Cheshire prefers the view of
an American Judge which he quotes at page 203--
"Some law must impose the obligation, and the
parties have nothing whatsoever to do with that, no
more than with whether their acts are torts or crimes".
The contract we are considering is silent about these
matters.
There is no express provision either about
the law that is to obtain or about the .situs.
We
have therefore to examine the rules that obtain when
that is the case.
The most usual way .of expressing the law in that
class of case is to say that an intention must be implied or imputed. In the Bank of Travancore v. Dhrit
Ram( 1 ), Lord Atkin said that when no intention is
expressed in the contract the Courts are left to infer
one by reference to considerations where the contract
was made and how and where it was to be performed
and
by
the nature
of the business or transaction to
which it refers.
In the Mount Albert Borough Council
case(1 ), Lord Wright put it this way at page 24{}.o-
"The parties may not have thought of the matter
at all. Then the Court has to impute an intention,
or to determine for the parties what is the proper law
which, as just and reasonable persons, they ought or
would have intended if they had thought about the
question when they made the contract".
(1) 1938 A. C. 1111+
(11) 6g I. A. 1, 8.
1955
T Ill Dtlhi Clot!t
and Gmeral Mills
Co. Ltd.
Y1
HamamSingh
and otlwrs
Bose].
1955
Thi Delhi Cloth
and C-al Mills
Co. Lid.
,y •
.