Author: Dhruv Khurana, student at ICFAI Law School, Hyderabad.
Citation: AIR 1959 SC 781
Date: 26 March, 1959
Bench: SUBBARAO, K. IMAM, SYED JAFFER SARKAR, A.K.
Original Copy: N/A
Issue of the Case:
- Whether the partnership agreement between the partners is valid by law according to Section 23 of Indian Contract Act, 1872?
Background of the Case:
- In the present case, Gherulal Parakh (appellant) and Mahadeodas Maiya (Respondent) were managers of their respective family and they entered into partnership agreement to hold on a wagering contract with two companies based on Harpur, namely Messrs.
- It was in the contract and was also agreed by the partners that they would share all the profits and losses equally.
- Mahadeodas Maiya entered into 32 contracts with Mulchand and 49 contracts with Baldeosahav and after sometime they all suffered huge losses. Due to loss suffered the respondent was liable to pay to Harpur merchants all the amount that was due to them.
- The appellant refused to pay the amount that was due to them as a partner. The respondent, with his sons, filed a suit in the court of the subordinate judge, Darjeeling, for the recovery of the amount due by the appellant. The respondent filed an appeal to the Supreme Court of India after that.
- In the present case, the Supreme Court stated that the parties were only dealing with transactions that are wagering in nature and they also had differences in prices. In addition, it had no interest in taking delivery of the goods.
- According to Section 30 of the Indian Contract Act, 1872, wagers are void but we cannot consider it as forbidden according to Section 23 of the Indian Contract Act which states that a person is not guilty when he is entering into the wagering transactions but he will be guilty when he will enforce such transactions.
- Hence, any of the collateral agreements cannot be said as unlawful due to the object of forbidden by law according to Section 23 of Indian Contract Act. So, the court held that the contract between the parties was not unlawful under the act.
- The agreements that are void are not the same as illegal agreements. The law may prohibit the enforcement of an agreement and in that case, it is merely a void agreement. So, it can be said that all illegal contracts are void but not all void contracts are illegal or unlawful by law.
- The Gaming Act, 1845 of England is the base of Section 30 of Indian Contract Act, 1872. It states that the main agreement of wagering or any other contract for the recovery of the money is void but secondary contracts, in respect, are enforceable in nature. So, by this it states that a wagering agreement can be void and unenforceable but it cannot be prohibited by the law. Hence, Section 23 of Indian Contract Act says that the matter of collateral agreement on wagering is not unlawful and therefore, they are valid and lawful between the parties.
- Hence, the partnership agreement between the partners entering into wagering transactions is not void but is enforceable and valid as according to Section 23 of Indian Contract Act, 1872. These type of contracts are neither forbidden by law nor immoral.