P L D 1962 (W (PLP)

WAHIDUDDIN AHMED, J.‑This is a Letters Patent Appeal against the judgment of Farooqui, J,. in Suit No. 137` of 1960, dated the 21st September 1960, decided on the original side of this Court. By this judgment the learned Single Judge rejected the objections of the appellants and made the award, filed by the arbitrators, as rule of the Court. Briefly the facts leading to this Letters Patent Appeal are that the respondent No. 1 entered into an agreement of partner ship with the appellants through Muhammad Akhtar, under a partnership deed, dated the 24th June 1954. This partnership was substituted by another agreement dated the 1st July 1954. Appellants 1 to 4 were carrying on business at Karachi in the name of Manzur Brothers, and had obtained from the Government of Pakistan a permit of export of 10,000 tons of rice on barter basis which entitled them to import the goods of equal value and for this purpose they needed funds. Respondent No. 1 joined this venture as financing partner. Respondent No. 2 who was carrying on another business in partnership with respondent No. 1 also joined this partnership. Respondent No. 1 invested Rs. 3,00,000 as capital. Respondent No. 2 invested Rs. 1,50,000, and the appellants invested only Rs. 50,

000. The object of the partner ship was to export 10,000 tons of rice on barter basis in respect of which appellants 1 to 4 had obtained a permit from the Government of Pakistan in the name of Manzur Brothers. The partnership carried into effect the above‑mentioned venture. According to respondent No. 1 the entire management of the partnership business was in the hands of the appellants who maintained the accounts and operated on the bank accounts but failed to render and settle the partnership account in spite of repeated demands. On 17th September 1957, respondent No. 1, by a notice, dissolved the partnership. On 12th October 1957, he made an application under section 20 of the Arbitration Act on the original side of this Court for referring the dispute between the parties, in pursuance of a clause in the partnership deed, to the arbitrators. By consent of the parties, on 3rd March 1958, a reference to settle the dispute between the parties was made to Mr. Yahya Bakhtiar and Mr. Zahoorul Haque, two prominent Advocates of this Court, as arbitrators. The arbitrators gave their award on 27th May 1958, and filed it in Court on 16th August 1958. Under the award the arbitrators gave an award in favour of respondent No. 1 for a sum of Rs. 2,05,

700. On 10th October. 1960, the appellants filed objections against the award. Number of objections were raised by them, but at the trial, only three objections were pressed before the learned Single Judge on the original side which are reproduced below:‑ (i) that the agreement of partnership, which contained the arbitration clause, was void, because its purpose was illegal inasmuch as it was intended to indulge in exchange deals which were prohibited by law; (ii) the arbitrators have gone beyond the record in giving their award; and (iii) the arbitrators have failed to consider the claim of the defendants 1 to 4 and they have disregarded the accounts produced before the income‑tax authorities." These objections were overruled on 23rd December 1960. On objection No. 1 the learned Single Judge held that the contract of partnership entered into between the parties was on the face of it a perfectly valid contract and held that the agreement between the parties was not hit by section 23 of the Contract Act. On the second objection it was held that it was for the arbitrators to reach the findings as regards the extent of the liability of the appellants and they having reached on a finding it was not for the Court to question it nor it was possible to hold that they had gone beyond the record. On the third objection the Single Judge held that there was no reason to believe that the arbitrators failed to consider all the claims and contentions raised before them by the appellant. From the elaborate nature of the proceedings and thorough manner in which the arbitrators have gone into the whole matter the learned Single Judge was satisfied that they had given their award after considering everything. The appellants seek to challenge the above findings of the learned Single Judge in this Letters Patent Appeal before us. Mr. Sharifuddin has attacked the award before us on two grounds. Firstly, that the agreements embodied in the two partnership deeds is illegal and void being unlawful in character or for an illegal object or against public policy and, therefore, the reference and award are void and cannot be given effect to. Secondly, that the learned arbitrators have failed to adjudicate on the claims of the appellants preferred before them. We will deal with these objections separately. The first objection raised by the appellants is based on the allegation that the partnership was for carrying on business for the export of 10,000 tons of rice. Under the licence granted by the Government the partnership business was to export the above mentioned quantity of rice and the Government in return were to issue licences for import of goods from abroad. The Government fixed 42 per ton as export price of the goods. This rate was not prevailing in the foreign markets in which the goods were to be exported. It was much less and was between 30 to

32. At the time of entering into an agreement the partnership was aware of this position and had decided to meet this deficiency by purchasing foreign exchange through unauthorised means in Pakistan. This was prohibited under the Foreign Exchange Regulations in force in Pakistan, and therefore, the object of the partnership was illegal and hit by the provisions of section 23 of the Contract Act. Mr. Sharifuddin contended that the partnership in these circumstances being void ab initio the arbitration proceeding and the award are also void and cannot be given effect, by a Court of law. In support of his contention the learned counsel referred us to the following passage in Halsbury's Laws of England, third edition, Volume 8, at page 125, under the heading "Void and Illegal Contracts" "There are several classes of contracts which, though perfect in point of form, cannot be enforced at law. Contracts which are expressly prohibited by statute form one of these classes. Another class consists of contracts which are illegal at common law, as involving the commission of a crime or tort, and a third class consists of contracts which are unlawful as being contrary to public policy, such as contracts conducing to sexual immorality. A fourth class consists of contracts which are not actually unlawful, but' merely void, either by statute, such as gaming and wagering contracts, or on grounds of public policy, such as contracts in general restraint of trade. The term "unlawful" or "illegal" is not uncommonly applied to all of these classes of contracts, but is more accurately confined to contracts falling within the first three classes." The learned counsel further relied on a decision of English Court of appeal in the case of David Taylor & Son, Ltd. v. Barnett (1953 All E L R 843). In that case the contract for the supply of stewed steak was at 2s. 4d. per pound, the maximum price fixed by the Government was 2s. d. per pound. A dispute having arisen between the buyer and the seller the matter was referred to an arbitrator. The arbitrator disagreed and an umpire was appointed. It was contended that the award was bad on the face of it. But no plea of illegality was taken when the motion was dismissed. The buyer then gave notice to enforce the award and the sellers contended that the contract was illegal and not enforceable. It was held that the Court had jurisdiction to set aside the award. It was further observed that the award based on an illegal contract is void and the Court will set it aside. The learned counsel in support of his contention also relied on a decision of the Madras High Court in the case of Hussain Kasam Dada v. Vijayanagaram Commercial Association and another (A I R 1954 Mad. 528), in which also the view expressed in the above‑mentioned decision was taken. But there are insurmountable difficulties to uphold the contention of the learned counsel for the appellants. In the first place, it will be noticed that there is nothing in the partnership agreement to suggest that the parties had agreed at the time of entering into partnership to carry on the business of the partnership in violation of the Foreign Exchange Regula tions in force in Pakistan. Secondly no objection was raised on behalf of the appellants or any of the parties when the matter was referred to the arbitrators on 3rd March 1958, , on the original side of this Court. In fact the reference to the arbitrators was made with the express consent of the parties. Moreover the appellant did not raise any such objection even before the arbitrators. It appears that after the evidence of the parties had been recorded and finished before the arbitrators respondent No. 2 who is defendant No. 5 on 25th May 1960, made an application before the arbitrators that they had no jurisdiction to proceed with the arbitration proceeding because the partnership agreement between the parties for the reasons mentioned above was illegal and could not be the basis of arbitra tion proceedings. The contention of Mr. Sharifuddin that the arbitrators should have given specific finding on the applica tion of the respondent No. 2 has no force because it is nod necessary for the arbitrators to give finding in the award on' each and every objection raised before them. If the arbitrators have not upheld the objection of the parties it would be taken that they have rejected the plea raised before them. It would, however, be seen that respondent No. 2 has neither filed any objection on the original side nor has filed any appeal in support of their objection. It is only the appellants who have taken the advantage of the objections raised on behalf of the respondent No. 2, both on the original side of this Court and in this appeal before us. It is in the light of the above‑mentioned circumstances that the question of the illegality or the void nature of the: alleged partnership had to be decided before the learned Single Judge on the original side and in this appeal. It seems to us that in those cases where ex facie the contract between the parties is illegal and void it is open to a party to raise this objection at any stage of the arbitration proceedings, and particularly before the Court when an award is sought to be made the rule of the Court for setting it aside on the ground that it was based on an illegal contract. But in a case where the question involves the consideration of evidence led by the parties and then to decide whether the case of one party is correct or the case of other party is correct the position is entirely different. This view is supported by the following passage dealing with illegal transactions contained in Russel on Arbitration, Fourteenth Edn. at pages 3 and

246. It is stated as under: "Where the subject‑matter of a reference is illegal no award can be of any binding effect. Thus in Joe Lee Ltd. v. Lord Dalmeny (1927) 2 Ch. 300, where the plaintiffs were book makers and had engaged in betting transactions with the defendants upon the terms of a set of rules which provided for the settlement of disputes by arbitration, it was held that the rules formed part of the contract between the plaintiffs, and the defendants, which was one of gaming and wagering and was enforceable, and that the plaintiffs were not entitled to have the disputes submitted to the tribunal provided for in the rules. But where mixed questions of law and fact have been submitted to arbitration, and the transactions between the parties have been closed by a general award, good on the face of it, the Court will not, on the suggestion that some illegal matter has been included, inquire into this, or re‑open the question in order to .set aside the award upon this ground." In the present case, as already stated, there is nothing in the partnership deed to suggest that the‑parties had intended or contemplated at the time of entering into the partnership to carry on the business in contravention of the provisions of the Foreign Exchange Regulations. Mr. Sharifuddin has pressed before us to consider the evidence led before the arbitrators by the parties in order to find out whether it was in the contempla tion of the parties to carry on the business in contravention of the Foreign Exchange Regulations and whether in fact the Foreign Exchange Regulations were infringed by them. In our opinion it is not open to a Court in arbitration proceedings to consider the evidence led by the parties or the case of the parties led before the arbitrators and then to come to a conclusion whether the contract entered into between them was illegal or otherwise. In Ghulam Jilani v. Muhammad Hassan (29 I A 51) the Judicial Committee has clearly laid down that if the award is otherwise valid, the Courts of law cannot interfere and review it on merits and say whether it is good, bad or indifferent. Their Lordships at page 60 observed as under: "They may have erred in law; but arbitrators may be judges of law as well as judges of fact, and an error in law certainly does not vitiate an award." Mr. Sharifuddin admitted that this statement of law still holds good in Pakistan. Unfortunately in the present case the learned arbitrators did not discuss the evidence led before them on this point and, therefore, it is not open for us to come to the conclusion whether on the evidence led before them they were justified in rejecting the objection raised by respondent No. 2 that the contract of partnership entered into between the parties was illegal. It is also not one of those cases where the parties have proceeded before the arbitrators on certain admitted facts. Respondent No. 1 at no stage of the proceedings before the arbitrators admitted that .the object of the partnership business was to carry on export business by infringing the provisions of Foreign Exchange Regulations. On the other hand this allegation was repudiated. But Mr. Sharifuddin contended that during the cross‑examination he admitted certain facts which go to show that his denial was false and the case of the appellants was correct. This, in our opinion, is not open to the arbitration Court it cannot review the evidence led before the arbitra tors, particularly when it does not form part of or discussed in the award, for finding out which party's case is correct in order to set aside the award. In these circumstances the cases relied upon by Mr. Sharifuddin are distinguishable and cannot be applied on the facts of the present case. The position in an ordinary suit, however, is entirely different. There it is open to a Court of appeal to examine the evidence led by the parties in support of their case for coming to the conclusion whether the contract is illegal or legal. If the Court comes to the conclusion that the contract was illegal it shall stay its hand and will not enforce an illegal contract in the case before it. Moreover even if the contention of the learned counsel for the appellants be accepted that the parties in carrying on the business of partnership violated the provisions of Foreign Exchange Regulation it is doubtful that any such violation in the present case will render the whole contract as illegal or void. Under section 21 of the Foreign Exchange Regulation, though it is provided that no person shall enter any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or of any rule, direction or order made thereunder, under subsection (3) to this section the enforcement of this contract in a Court of law, by legal proceedings is not barred and a Court of law is permitted to pass a judgment or decree on such contracts, with this exception only that the judgment or decree of the Court will not be enforced without the previous permission of the State Bank of Pakistan. This is evidence from the following subsection reproduced below :‑ "Neither the provisions of this .pct nor any term (whether expressed or implied) contained in any contract that anything for which the permission of the Central Government or (the State Bank) is required by the said provisions shall not be done without that permission, shall prevent legal proceedings being brought in (the Provinces and the Capital of the Federation) to recover any sum which, apart from the said provisions and any such term, would be due, whether as a debt, damages or otherwise, but‑ (a) the said provisions shall apply to sums required to be paid by any judgment or order of any Court as they apply in relation to other sums ; and (b) no steps shall be taken for the purpose of enforcing any judgment or order for the payment of any sum to which the said provisions apply except as respects so much thereof as the Central Government or (the State Bank), as the case may be, may permit to be paid; and (c) for the purpose of considering whether or not to grant such permission the Central Government or (the State Bank), as the case may be, may require the person entitled to the benefit of the judgment or order and the debtor under the judgment or order, to produce such documents and to give such information as may be specified in the requirement." Mr. Sharifuddin has invited our attention to a decision of the Dacca High Court in the case of Benimadhab Pal v. Sachinandan Roy (P L D 1958 Dacca 494). In that case it was held that

"the transaction was contrary to the provisions of sections 4 and 5, Foreign Exchange Regulation Act (VII of 1947) and if permitted, would result in an evasion or avoidance of such provisions within the meaning of section 21 (1) of the said, Act. The transaction could not be enforced in Pakistan Courts although the dispute may be entertainable by such Courts." The learned Judges of the Dacca High Court in this case how ever did not consider the implication of subsection (3) reproduced above. In our opinion, the view of the learned. Judge in that case that a decree cannot be passed on a contract which violates the provisions of Foreign Exchange Regulation cannot be accepted as sound in view of subsection (3) reproduced above. With great respect the view taken in that decision is not in accordance with the provisions of law‑ After considering the arguments advanced by the learned counsel for the appellants it is clear to us that in the present case it cannot be held ex facie that the agreements of partner ship entered into between the parties are illegal or void. We have also come to the conclusion that in such circumstances it is not open to a Court of law in an arbitration matter to go into the case of the parties and the evidence produced by them for finding out whether the contract entered into between them is illegal or legal. We have further come to the con clusion that even if it be assumed that the parties in carrying on the business of the partnership had violated and infringed the provisions of Foreign Exchange Regulation, this would not render the contract as illegal or void in the sense as it is under stood under the provisions of the Contract Act. Under section 21 of the Foreign Exchange Regulation if a party on the basis of such contracts is entitled to bring a suit in an ordinary way, he is permitted to file a suit and the Courts of law are permitted to pass a judgment and decree thereon, with this rider only that such a judgment will not be enforced without the prior permission of the State Bank of Pakistan. In our opinion, in these circumstances, the learned Single Judge was perfectly justified in rejecting the first objection raised on behalf of the appellants before us. As regards the second objection it was faintly argued by the learned counsel for the appellants that the arbitrators had failed to adjudicate the claims of the appellants raised before them. The arbitrators have not discussed in the award the claims raised by the parties before them. The award is silent on this question. We entirely agree, therefore, with the learned Single Judge that it will be presumed in these circumstance that the arbitrators have considered the claims made by the appellants and have either adjusted them in settling the accounts between the parties or have rejected the appellants claim in this respect. In our opinion the learned Single Judge, was fully justified in overruling the second objection raised on behalf of the appellants. No other point was urged before us. Having regard to the facts and circumstances of this case we find no force in this appeal and dismiss it with costs. A. H. Appeal dismissed.