1979CLC321 (PLP)

SITE on Plot 1-10-75. vide S. No. No. 4/5 building 19878/10/75 & machinery, dated 22-10-75. (ii)5/4 Defendant's mill 1-10-74 Rs. 28,774 , No. 74/1048 for No. 1 situated in to Rs. 1,50,000 paid SITE on Plot 1-10-75. vide S. No. No. A/5 building 19878/10/75 & machinery. dated 22-10-75. (iii)5/2 Defendant's mill 1-10-75 Rs. 63,650.61 Receipt No. No. 1 situated in to 19874 dated Site on Plot 1-10-76. 22-10-75. No. A/5 building & machinery. (iv)5/3 Defendant's mill 1-10-76 Rs. 28,774 Receipt No. 2 situated in to 19874 dated Site on Plot 1-10-77 22-10-75. No. A/5 building and machinery. It may be observed that Exhs. 5/ 1 to 5/4 cover I year period commencing from 1-10-74 to 1-10-75 and the total amount of premium payable by the defendants to the co-insurer and to the plaintiff for the above two insurance Policies was Rs. 92,424.61 against which the bank guarantee of Rs. 1,50,000 mentioned hereinabove was provided by the defendants. Exh. 5/1 bears guarantee No of 1974 and has also mentioned that 'paid vide receipt No. 19878/10/75 dated 22-10-75. The above endorsement indicates that in addition to the Bank Guarantee the premium was also paid whereas Exhs. 5/2 and 5/3 cover the insurance policy commencing from 1-10-75 to 1-10-76. (d) It may be observed that the above two insurance policies have referred to the aforesaid receipt No. 19878/75 dated 22-10-75. The total premium of these two insurance policies payable by the defendants was also the same amount as of Exhs. 511 and 5/4, viz. Rs. 92,424.61. In other words the total premium payable against the four insurance policies was Rs. 1,84,849.22 and whereas the amount of the bank guarantee was only Rs. 1,50,

000. However, this deficiency has been covered by the fact that the defendants had paid to the co-insurer their share of the premium referred to hereinabove. P. W. 1 (Exh. 5) has also stated that Adamjee Insurance Co. received their share of premium on 2-10-75 a total sum of Rs. 47,136.54 on the two insurance policies and these two insurance policies were issued in 1975. It appears that before the receipt of the above payment the co-insurer had also received their premium in respect of the two earlier policies issued in 1974 referred to her in above. In view of the fact that the above four insurance policies wee D backed by a bank guarantee of Rs. 1,50,000 and by the cash payment of the share of the co-insurer these policies have complied with the provisions of section 3 (e)(4) of the Insurance Act, 1938, quoted hereinabove as well as the requirement of rule 44 of the Insurance Rules, 1958, quoted hereinabove, and, therefore, prima facie these insurance policies were valid and legal. (e) Mr. Abdus Samad learned counsel for the defendants has submitted that under clause (2) of rule 51 of the Insurance Rules, 1958, it has been provided that where the risk in respect of any insurance is covered on the basis of a bank guarantee under rule 44 (iii), the premium in respect of the risk assumed in a calendar month should be paid before the end of next succeeding calendar month. It was urged by him that as admittedly no payment was made to the plaintiff by the defendants the above insurance policies were not valid. In my view the above contention is devoid of any force inasmuch as the comparison of rules 44 and 51 clearly bears out that whereas rule 44 has used prohibitory language by providing that where Eas premium in respect of any insurance can be ascertained in advance !n insurer shall assume any risk in respect of general insurance policies unless the insured either pays the amount in cash or provides a bank guarantee, etc. and whereas in rule 51 no such prohibitory language has been employed. It is true that it provides that premium in respect of the risk assumed should be paid before the end of the next succeeding calendar month. In my view the above provision seems to be directory in nature and not mandatory. The object of section 3(c)(4) and rule 44 appears to be that the recovery of the premium should be ensured before assuming the risk in respect of a general insurance and that object is achieved if the premium is guaranteed by a bank guarantee. The provisions of rule 44 are in consonance with the aforesaid provisions of section 3(c)(4) of the Act. (f) Before parting with the discussion, it may be pertinent to point out that under clause (7) of the above rule 51, it has been provided that in case of co-insurance the premium shall be deemed to have been duly paid if paid on the full insurance policy to any one of the co-insurers. In other words the above clause of rule 51 authorises the collection of premium or obtaining of a bank guarantee by the co-insurer on behalf of the other co-insurers. In this regard, it may be observed that the co-insurer had forwarded the bills for the entire premium in respect of the above four insurance policies, i.e. even in respect of amount of the premium payable to the plaintiff. The above bills have been brought on record and have been exhibited as Exhs. 5/6, 5/7, 5/8 and 5/9, the details of the above bills are as follows:- (i) Exh. 5/6 bill dated 23-10-74 for an amount of premium demanded Rs. 18,777. (ii) Exh. 5/7 bill dated 23-10-74 for an amount of premium demanded Rs. 63,650.61. (iii) Exh. 5/8 bill dated 23-10-75 for the amount of premium demanded Rs. 28,774. (iv) Exh. 5/9 bill dated 23-10-75 for an amount premium demanded Rs. 63,650.61. It may be noticed that the above-quoted amounts correspond with the amounts of the net premiums payable under the four insurance policies and the bills- 'were forwarded to the defendants in the month of October of 1974 and 1975 when the above insurance policies had commenced. In this regard the statement of D. W. 1, Exh. 7 may be pertinent to refer, wherein inter alia he has stated that, "I had received toe bills Exh. 5/6 to 5/9". He has further stated as follows:- "It is correct that the policies Exhs. 5/1 to 5/4 mention the name of Adamjee Insurance Co. as well as the Eastern Federal Union Insurance Company. It is correct that the defendants issued a bank guarantee in favour of the Adamjee Insurance Company in respect of the afore said insurance policies. It is correct that the defendants had issued bank guarantee for payment of insurance premia but some time they also paid cash payments." In view of the above discussion it cannot be urged that the above insurance policies are not enforceable. 7. (a) Mr. Abdul Samad, the learned counsel for the defendant has referred to section 23 of the Contract Act in support of his contention that the policies are not enforceable. He has also referred to the case of Sundra Bai Sita Ram and another. v. Manohar Bhondu (AIR 1933 BP262), Kali Kumeri Balsnabai v. Mono Mohini Baisnabai (A I R 1935 Cal 748) Mohammad Qureshi v. Settlement Commissioner, Lahore Division, Lahore and 2 others (I ), Wall Muhammad and another v. Messrs Noor Ali and Co. (2), Trans Ocean Asia v. Alpha Insurance Co. (3), E. A. Evans v. Mohammad Ashraf (4) in support of his submission that a contract in violation of any provision of law is not enforceable. (b) Reverting to the first case reported referred to hereinabove, vii. A I R 1933 Bom. 262, it may be observed that the facts of the case were that a police officer who was forbidden from purchasing land by virtue of section 33, Police Act, had purchased the land in the name of his mother. After his death she sold a portion of it to her daughter. The son of the deceased aforesaid police officer sued for setting aside the above sale alleging that his father was the true owner of the property. Held that the contract under which the plaintiff's father obtained the property was void and, there fore. no claim could be made on the basis of the illegal agreement and that as the father had no title the son was not entitled to it. (c) Referring to the case reported in A I R 1935 Cal. 748, It will suffice to say that in the above case the premises were let out to a prostitute for running a brothel, it was held by the Calcutta High Court that such a contract could not be enforced as the object of the agreement was illegal, immoral and against the public policy. (d) Referring to the case reported in P L D 1971 S C 61, it may be observed that their Lordships while considering the provisions of section 20(5) of the Displaced Persons (Compensation and Rehabilitation) Act, 1958 were pleased to hold that the provision relating to giving of an opportunity to show cause to a person against whom the order was to be passed was mandatory and without fulfilling such absolute requirement of the statute, the order passed was a nullity. (e) Referring to the case reported in P L D 1963 Kar. 32, it may be stated that A. S. Farooqi, .1. while considering the provisions of section 23 of the Contract Act, was pleased to bold that a contract in violation of the provisions of Imports and Exports (Control) Act, 1950) was void as it calculated to defeat the prohibition of transferring the licence issued under the said enactment. (f) Reverting to the case reported in P L J 1975 Kac. 33, it may be pertinent to state that the question before Mushtaq Ali Kazi, J. was, as to whether a cover note issued in the absence of payment of premium or bank guarantee was not binding. His Lordship after considering the provisions of section 30(P L D 1964 S C 536) of the Act and the Insurance Rule 58 was pleased to hold that such a cover note was not valid and that there was no valid insurance policy. (g) Referring to the case reported in P L D 1964 S C 536, it may be observ ed that the majority view of the Supreme Court was that a party cannot contract out the provisions of section 30(P L D 1971 S C 61), proviso (b) (P L D 1963 Kar. 32)( P L J 1975 Kar. 33) (i)(li) of the Displaced Persons (Compensation and Rehabilitation) Act. (h) In my view the above rulings have no relevancy to the instant case in asmuch as I have already held that there was no violation of provisions the Insurance Act or the rules framed thereunder as to warrant the application of section 23 of the Contract Act or the case law in respect thereof to the instant case. The insurance policies in question have not contravened any provision of law involving any moral turpitude nor the same involved contracting out of any mandatory provision of an enactment enacted for the benefit of the defendants. 8. (a) Mr. Abdul Rauf, learned counsel for the plaintiff has contended that even if it is to be held that the above four insurance polices have violated the provisions of the Insurance Act and the rules framed thereunder the defendants still remained liable to pay the premium by virtue of sections 65 and 70 of the Contract Act. In support of the above contention he has relied upon the case of Province of West Pakistan and another v. Messrs Asghar Ali Mohammad Ali & Co. (P L D 1968 Kar. 196), the case of Dr. Fazal Din v. Municipal Committee, Lyallpur (P L D 1956 Lah. 916), in the case of Mian Akbar Hussain v. West Punjab Government (P L D 1954 Lah. 188), the case of N. Purkayastha and another v. Union of India (A I R 1955 Assam 33), the case of Alapati Ramamurthi Gelif Krishnamurthl & Co. and others v. Maddi Sitaramaya (A I R 1958 Andh. Pra. 427), the case of Palaniswami Goundhar v. English and Scottish Co-operative Wholesale Societies Ltd. (A I R 1933 Mad. 145) and the case of Village Panchayat of Jangareddigudem v. Kommireddy Narasayya (A I R 1965 Andh. Pra. 191). (b) Reverting to the case reported in P L D 1968 Kar. 196, it may be observed that a Division Bench of the earstwhile High Court of West Pakistan while considering the effect of section 69 of the Partnership Act because of want of registration of the firm was pleased to observe that the obligation under section 65 of the Contract Act, to restore advantage or to pay compensation received under void agreement or a contract which has become void is completely different from that under the agreement or the contract itself, and that the obligation is like a phoenix that can be raised again by one of the parties from the dead ashes of its former self. (c) With reference to the case reported in P L D 1956 Lah. 916, it may be stated that the facts were that a piece of land was teased out by a Municipal Committee by a lease deed which was not sealed in accordance with section 6 of the Punjab Municipal (Executive Officer) Act, 1931. It was held by a Division Bench that the Municipal Committee was entitled to the restoration of benefit received by the lessee by virtue of sections 65 and 70 of the Contract Act even in. the absence of a plea to that effect in the suit against the lessee for the recovery of damages for the breach of the agreement of lease. (d) In the case reported in P L D 1964 Lah. 168, it was held that the benefit derived by a licensee under and invalid opium or liquir licence, the licensee may be made to ensure such benefits to the Government. (e) Referring to the case reported in A I R 1955 Assam 33, it may be observed that the agreement entered into between the Government and the contractor was not in accordance with the provisions of section 175 (3) of the Government of India Act, it was held that notwithstanding that the contract was not enforceable, the Government was liable to restore the benefit under section 65 of the Contract Act. (f) In the case reported in 1958 Andh. Pra. 427 the defendants entered into a contract with the plaintiff agreeing to sell 75 bales of Gunnies at the then prevalent rate of Rs. 9-t/6 per hundered Gunnies. The above contract was in violation of the Jute Prices Control Order, 1964, it was held that inter alia the provisions of section 65 of the Contract Act were attracted to. (g) In the case reported in A I R 1933 Mad. 145 a contract entered into by the English and Scottish Co-operative Societies was in violation of the rules of Societies relating to the execution of the contract under Act 1 of 1903. A Single Judge of the Madras High Court was pleased to hold that an affected person was entitled to the return of money either on the basis of quatum meruit or on the principle of restoration of benefit under a void contract. (h) In the case reported in A I R 1968 Andh. Pra. 191, the defendants had given a bid for the right to collect fee in a market but did not execute the registered lease deed representing the terms of the auction, held that sections 65 and 70 of the Contract Act were applicable and the defendants were bound to pay compensation to the plaintiff. (i) Inter alia the following principles are deducible from the above rulings (a) That if a contract is not enforceable being in violation of some provisions of law, or want of proper execution, the party who has derived /received benefit under such contract is liable to restore the benefit to the other party or to pay compensation in respect thereof provided the contract is not illegal or immoral or against public policy involving a moral turpitude. (b) That a Court is competent to press into service section 65 and/or section 70 of the Contract Act even if it is pleaded by the plaintiff in a suit filed for the breach of an agreement on the assumption that the agreement was valid but on trial found void by the Court. 9. (a) In the instant case my first impression was that the provisions of sections 65 and 70 cannot be passed into service as the plaintiff has not paid any compensation for the loss arising out of the four insurance policies. However, Mr. A. Rauf, the learned counsel for the plaintiff has submitted that these insurance policies were obtained by the defendants inter alia with the object to perform their obligation under the loans agreements entered into between the defendants and P. 1, C.

1. C. and National Bank of Pakistan who were mortgagees of the two mills insured and the names of the aforesaid two financial institutions were mentioned insured in the insurance policies. It was urged that the aforesaid two lending financial institutions had treated the aforesaid policies as valid for the purpose of performing obligation under the loans agreements, and, therefore, the defendants received benefit which they are liable to restore or to pay compensation in respect thereof. Since I have held that the aforesaid insurance policies were valid and enforceable, it is not necessary to examine the above contention in detail. (b) Mr. A. Rauf, the learned counsel for the plaintiff had also submitted two cases after the conclusion of the arguments and informed the Court that he had given the list of these two cases to the learned counsel for the defendants The first case relied upon by Mr. A. Rauf in the case In re: Coltman (LR19Ch.D64). In the above case the Trustee of the Friendly Society loanded out surplus fund of the Society in violation of the Friendly Societies Act, held on appeal that as it was not alleged that the money was borrowed for an illegal propose, the contract was not illegal but was merely unauthorised and that it was not competent to the borrower to allege by way of defence that the l5ayees had no authority to loan the money. (c) The other case is the case of Nabi Bux others v. Muhammadi and an others. In the above case also certain amount was loaned out by the Co operative Society to violation of section 39 of the Co-operative Societies Act to a non-member. It was held that the society can recover advance to any non member independently of the contract on the principle that the defendants at the time of taking the loan made an implied promise to pay. (d) The ratio decidendi of the above two cases is that if a contract is not enforceable because of violation of any provision of law and if the contract cannot be said to be immoral or illegal the person who has derived taken benefit under such contract is liable to restore benefit or to pay compensation in respect thereof. In other words these two rulings also accorded recogni tion to the principle embodied in section 65 of the Contract Act. In view of the above discussion my finding on this issue is in the affirmative. 10. (a) Issue No. 2.-In order to appreciate the above issue, it will be necessary to refer to the documents which, according to the learned counsel for the plaintiff constitute an admission of the liability by the defendants. The first letter on the subject is the plaintiff's letter dated 9-9-76 Exh. 6/5 addressed to the defendants in which, it was pointed out that the defendants were liable to pay a sum of Rs. 90,585.71 towards the premium in respect of the year 1974-75 and that the cheque of Rs. 25,000 dated 29-1-76 given by the defendants was dishonored. The defendants were requested to clear the above dues. This letter was followed by a reminder dated 19-11-76 Exhs. 6/6. Again this was followed by letters dated 4-1-77, 17-1-77 and 23-2-77 Exhs. 6/7, 6/8 and 6/9 respectively. Finally the plaintiff served a notice through their Advocate under section 163 of the Companies Act wherein full facts of the case were stated including the fact that the cheques were dishonored. It was also pointed out that Exhs. 6/5 and 6/6 were not responded to, by the defendants. The defendants were called upon to clear the dues failing which liquidation proceedings were to be initiated. In reply to the above notice, the defendants sent a letter dated 20-12-1976 Exh. 6/11, wherein they admitted their liability and stated that due to unprecedented crisis that had affected the textile industry and as still far from over they could not pay. However, the defendants assured that they would make every endeavour to clear these dues as soon as possible and that shall "Inshallah" be paying an amount of Rs. 25,000 in the first week of January, 1977 and from next month onwards they shall pay the balance in instalments. According to the learned counsel for the plaintiff this is an unqualified admission of liability by the defendants and, therefore, a decree can be passed even on the basis of the above admission leaving a part the legality of the four insurance policies. (b) On the other hand, Mr. Abdus Samad, learned counsel for the defendants submitted that this alleged admission was made at the time when the defendants were admittedly in financial trouble and they were under the threat of a liquidation proceeding held out by the plaintiff's Advocate in his aforesaid notice dated 15-12-1976 and, therefore, it was no admission. He further submitted that in any case the aforesaid alleged admission was made under a mistake of law to the effect that the said four insurance policies were enforceable, though they were not being in violation of the provisions of the Insurance Act and the Rules framed thereunder. In support of the above contention he has referred to para 537 of the Halsbury's Law of England, 3rd Edition, Volume XV wherein the learned author has observed as follows:- "As the value of an admission depends on the circumstances in which it was made, evidence of such circumstances is always receivable to affect the weight of the admission. Thus, the party against whom it is tendered may show that it was made under an erroneous view of the law, or in ignorance of the facts, or when his mind was in an abnormal condition." In my opinion the defendants cannot press into service the above principle. The defendants were one of the leading industrialists of Pakistan and it is not their case they could not obtain legal advice on the plaintiff's advocates aforesaid notice dated 15-12-76. The fact that the defendants did not send a reply to the plaintiff's Advocate's above notice through any lawyer indicates that the defendants were convinced that they were liable to pay the amount demanded and that they had no defence. (c) Mr. Abdus Samad has also referred to the case of Mst Meena v. Mahoharlal and others.( A I R 1941 Oudh 249), the case of Mst. Gaura Dei v. Mohammad Yasin All Khan and others (A I R 1935 Oudh 121) and the case of Malik Desraj Fakirchand v. Firm Pyaralal Ayaram and others (A I R 1946 Lah. 65). (d) In the aforesaid case reported in A I R 1941 Oudh 249, it was held that an admission which is wrong in point of fact and is evidently made in ignorance of legal right is not binding on the person making it. (e) In the case reported in A I R 1935 Oudh 121 it was held that:- "the doctrine of estoppel cannot be invoked to render valid transaction, which the Legislature has, on grounds of general public policy, enacted shall be invalid. A party cannot by a representation any more than by other means raise against himself an estoppel so as to create a state of things which he is under a legal disability from creating." (f) In the last case reported in A I R 1946 Lah. 65 it was observed that an admission cannot be relied upon less it is put in cross-examination to the person against whom it is sought to be pressed into service. (g) In my view the above rulings have no relevancy to the instant case as the insurance policies according to my finding referred to hereinabove were valid and therefore, the defendants did not admit their liability under a mistake of law or fact nor the instant case involves enforcement of an illegal contract on the basis of doctrine of estoppel. The defendant's witness was put in cross-examination the relevant documents to show that the defendants admitted their liability and, therefore, the last case referred to hereinabove, namely, A I R 1946 Lah. 65 has no application to the instant case. 11. (a) Before parting with the above discussion it will be fair to point out that Mr. Abdus Samad, the learned counsel for the defendants has also was examined in spite of the fact that the plaintiff did not file the list of witnesses and, therefore, his evidence is liable to be ignored. In this regard he has referred to the case of H. M. Sadid di Co. v. Volkart (Pak.) Ltd. (P L D 1976 Lab. 1460) in which it was held by a learned Single Judge that the examination of the witness not named in the list of witnesses cannot be made except with the permission of the Court and that the recording of the statement of such witness by trial Court without giving reasons was in violation of Rule 1 (1) (2) of Order 16, C. P. C. It will suffice to say that my learned brother Naimuddin, recorded the evidence of P. W. 1 and there is no indication as to whether the learned counsel for the defendant had raised any objection to the examination of P. W.

1. Be that as it may in my view my learned brother Naimuddin, J, was competent to allow the examination of any witness and as P. W. 1 was very relevant witness, hi examination was necessary and doing so nothing illegal has been done. Even otherwise I cannot sit in appeal on this point. Once the statement of P. W. 1 has been recorded without any recorded objection, it cannot be ignored. (b) Mr. Abdus Samad has also referred to the case of Raghavamma and an other v. A. Chanchamma (AIR 1964 S C 136) in which it was inter alia held that there is distinc tion between the burden of proof and onus to prove and that onus of proof shifts but not the burden. I see no relevancy of the above ruling to the instant case inasmuch as that on the basis of the oral and documentary evidence I have held that the four insurance policies are enforceable. (c) Mr. Abdus Samad, the learned counsel for the defendants has also referred to the various paras of the plaint in order to demonstrate that the contents of the plaint are vague and the plaintiff has not raised the plea that the insurance policies were valid because of the bank guarantee. It is true that the plaint has not been happily worded/pleaded and reliance was placed on the aforesaid dishonoured cheque dated 29-1-75 Exh. 6/2, but it has been pleaded in the plaint that the insurance policies were enforceable though no reference to the bank guarantee has been made. The question in issue before this Court is, as to whether the insurance policies were valid. In any view while considering the above question if the court finds that on the basis of the contents of the insurance policies which mention the bank guarantee occupied with the admission of the defendants' witness D. W. 1 about the furnishing of the bank guarantee against the four policies in soon, the Court can hold that the policies were valid. The rules of pleadings are enacted inter all- with the object to eliminate the element of surprise to an adversary and not with the object to defeat an admitted claim. In the instant case the defendants cannot have a grievance that they were taken by surprise since they knew that they had furnished a bank guarantee against the insurance policies in question in lieu of the cash payment.

12. Issue No.

3. In view of my above discussion I decree the suit against the defendants for a sum of Rs. 96,586.71 with 9 Y. interest thereon from the date of the suit till payment with costs. S. A. H. . Appeal dismissed.