P L D 1975 Karachi 661


Before Mushtak Ali Kazi, J








Suit No. 168 of 1968, decided on 11th March 1974.



Shabbir Ghori for Plaintiff.


A. Aziz for Defendant.


Dates of hearing : 22nd, 28th February and 1st March 1974.




This is a suit by agents against their up‑country principals for recovery of Rs. 96,486.80 due upon an agency account.


2. The plaintiffs, a limited company, were appointed by the defendants firm of Haselpur, Bahawalpur District, as their commission agents at Karachi. The defendants in February, 1965, entered into cotton forward contracts through a broker in the name of the plaintiff‑Company. It was understood, that differences in contract price and market price were to be paid till the date of delivery or till the contract was settled by mutual agreement. There was initial gain of Rs. 1,608 followed by losses of Rs. 39,456. These were paid by the plaintiffs on account of the defendants. Since the market was rising the plaintiffs finally entered into contracts of purchase and settled the contracts by payment of further sum of Rs. 3,264. Rs. 216 were paid as commission. Thus total sum of Rs. 41,328 were paid by the plaintiffs on behalf of the defendants on account of these forward contracts.


3. Subsequently in March‑April, 1965, the defendants sent to the plaintiff 481 bales of cotton for sale on their behalf. The plaintiffs paid a sum of Rs. 2,20,269.84 to the defendants against the railway receipts. Rs. 1,097 were paid in cash. Rs. 3,840.24 were incurred on account of ;insurance. From the sale of cotton between 22‑7‑1965 and 13‑11‑1965 the plaintiffs realized a sum of Rs. 1,98,870.44. The defendants sent to the plaintiffs Rs. 5,000 by cheque on 21‑4‑1965. The defendants also became liable to the plaintiffs for a sum of Rs. 33,622.16 on account of commission, interest on payments made on behalf of the defendants etc. Thus there was .a debit balance of Rs. 96,486.80 due from the defendants, which they failed ‑to pay when demanded, on one pretext or the other. The plaintiffs accord ingly filed this suit.


4. The defendants’ case is that the forward contracts which formed the basis of the accounts were wagering contracts and there was no intention to fulfil the contracts in specie. The contracts being void no liability was :incurred by the defendants. The defendants have also contended that the .defendants firm is a sole proprietorship concern owned by Illahi bux son of Rukanuddin. That they had not instructed the plaintiffs to enter into purchases or sales and to make payment on their behalf. Regarding the 481 bales of cotton despatched to the plaintiffs, the defendants have contended that they have received a total sum of Rs 2,15,000 as against Rs. 2,62,748. which was legally due to them. The defendants have denied liability for ‑payment of insurance and other incidental charges.


5. On the aforesaid pleadings 12 consent issues were adopted. Sub sequently the issues have been recast by consent as under:


(1) Whether the defendant firm is/was a partnership firm?


(2) Whether the plaintiff allowed use of their name as alleged in respect of 12 lots of cotton in question in the suit?


(3) (i) What losses. if any, the defendants suffered in respect of the aforesaid 12 lots of cotton?


(ii) Whether the plaintiff paid the said losses for and on account of the defendants?


(iii) Whether defendants are liable to reimburse the plaintiff for the said losses?


(4) What amounts were paid to the defendants or spent‑paid on their account by the plaintiffs against 481 bales of cotton consigned by the former to the latter to be sold at Karachi.


(5) During what period the aforesaid 481 bales of cotton were sold by the plaintiffs and what amount was realized as sale‑proceeds thereof?


(6) is the suit or any part of the claim barred by time?


(7) Whether the transactions in question in the suit were all by way of wager and, therefore, void? If so, is the suit not maintainable?


(8) To what amount, if any, the plaintiffs are entitled?


(9) What should the decree be?


6. The plaintiffs have examined 5 witnesses and produced the necessary ,documents in support of their claim, including extracts from their ledger. The defendants have examined 3 witnesses and produced their income‑tax Assessment order for the year 1963‑64 to show that the assessee was doing ‘business as individual and not as a firm. The issues are accordingly answered in the light of the above evidence as under:‑


Issue No. 1


7. The plaintiffs have examined Muhammad Hayat Exh. 6 from the Bank of Bahawalpur, Karachi. He has produced the account opening form and specimen signature card of the partnership account of Illahibux and Gulzar Muhammad carried on in the name of Mian Khairuddin, Rukunuddin. This partnership account was opened on 11‑3‑1957 and closed in January, 1966. The statement of account filed as Exh. 6/3 shows that the account was being operated regularly until January, 1966, when the balance amount was transferred and the account was closed. The account opening form shows there were two partners who could operate the account severally. The business of the firm was commission agency at Haselpur. The case of the .defendants is that the said partnership was dissolved in the year 1960 and the income‑tax assessment order Exh. 14/1 shows that Illahibux was doing ‘business as an individual. The transactions, which are the subject‑matter of this suit, took place in the year 1965. Assessment order is for the year 1963‑64 before the transactions in question. This assessment order is in the name of Messrs Khairuddin, Rukunuddin care of Malik Khushi Muhammad & Company, Haselpur and the status is shown as “individual” and not as a firm registered or unregistered. The mere fact of the account was being operated until January, 1966, will not show that the firm p as being‑continued until that date. There is nothing to show that any cheques were drawn by Gulzar Muhammad in respect of this account after the dissolution of the firm in the year 1960. Under the circumstances, the above concern has not been proved to be a partnership firm during the year 1964‑65.


Issue No. 2


8. This issue relates to forward contracts entered into through the ‑plaintiffs as commission agents and in their name. The defendant has denied these: contracts altogether but the evidence of Abbas Jalali, Manager and Attorney of the plaintiff‑Company shows that the defendants had appointed them as commission agents at Karachi and since the defendants firm was not ‘known in Karachi, they had requested the plaintiffs to let their name be used in the forward transactions entered through Ramzanali and Seemco brokers. ‘The plaintiff’s witness had produced letters and telegrams to show that they were acting as commission agents for the defendants in respect of these for ward contracts. Copy of letter Exh.7/8 has been produced asking the defendants to remit Rs. 45,000 to cover the loss. An acknowledgment receipt has been produced to show that this letter was received by the defendants. Then there is an acknowledgment dated 30‑5‑1965 on the letter head of Khairuddin, Rukunuddin signed by Muhammad Haneef son of Illabibux confirming these transactions carried on their account. There is also the telegram Exh. 5/8 despatched by Mian Khairuddin, Rukunuddin the defendants in reply to telegram of the plaintiffs that regarding the purchases they were not liable as their prior‑ approval was necessary. All this shows that Khairuddin, Rukunuddin were concerned in these transactions and their subsequent denial is of no consequence. The deposition of Illahibux shows that the witness is out to purjure himself and he i3 not to be relied upon in respect of what he says. He has even declined to admit the signatures of his ‑son Muhammad Haneef without looking at them and cannot say whether his son used to sign in Urdu. He has denied receipt of the telegram Exh. 7/8.


His demeanour has been noted down by the Presiding Judge. As against: this evidence, the oral testimony of the plaintiff and his witnesses supported by the documents produced on behalf of the plaintiffs, appears to be more reliable and true. I accordingly find that the plaintiffs acted as commission agents on behalf of the defendants in respect of forward contracts covering 12 lots of cotton as alleged.


Issue No. 3


9. It has been admitted that Rs. 41,326 were paid by the plaintiffs to Ramzanali in respect of these forward contracts. In the telegram Exh. 5/8 these transactions have not been disowned but mere purchase of cotton has been disapproved; but since the cotton’ was purchased for the purpose of settle ment of the prior contracts for sale, and this has not been shown to be beyond the scope of the agency business, the defendants could not deny their liability for the same. The said losses are shown to have been paid by the plaintiffs’ on account of the defendants. Whether the defendants are liable to reimburse the plaintiffs for these losses will depend on the result of issue No. 7.


Issues Nos. 4 and 5


10. These issues are in respect of 481 bales of cotton consigned by the defendants to the plaintiff for being sold at Karachi. The plaintiffs have produced books of accounts to show that these consignments were sold on various dates between 22‑7‑1965 and 13‑11‑1965 and a total of sum of’ Rs. 1.98,870.44 was realized as sale proceeds. The plaintiffs paid the defendants Rs. 2,20,469.84 against railway receipts in addition to Rs. 1,097 paid in cash and Rs. 3,840.24 as insurance charges. In addition the plaintiffs.. have produced their vouchers for the details of the expenses for clearing the 481 bales of cotton as per statement of account Exh. 7/15. There is nothing. to suggest that these accounts were not kept in the regular course of business by the plaintiff‑Company. The accounts have been duly proved by the Manager of the plaintiffs. There is nothing to suggest that these accounts. and vouchers have been fabricated. These issues are accordingly decided in favour of the plaintiffs.


Issue No. 6


11. This issue is in respect of the contention of the defendants that the suit is barred by limitation. According to the defendants the claim of the plaintiffs consists of different payments made on their behalf and it has been argued that these were distinct and separate transactions. For instance Rs. 12,000 were paid to Ramzanali in respect of forward contracts on 8‑3‑1965 and Rs. 25,848 on 16‑3‑1965. That the balance was paid on. 18‑3‑1965. That period of limitation being three years the last items became time‑barred on 19‑3‑1968 and the suit was filed on 30‑5‑1968. It has also been argued by Mr. Abdul Aziz on behalf of the defendants that for money paid on account of another person the period of limitation is three years from the date of payment. under Article 6(1) of the Limitation Act. That the plaintiffs could not rely n the alleged acknowledgment in writing dated 30‑5‑1965 written and signed by Muhammad Haneef as this fact was. not mentioned in the plaint to show how the suit was within time and the document had not been filed along with the plaint. Mr. Abdul Aziz has also pointed out that an acknowledgment under section 19 of the Limitation Act should be made by an agent duly authorized in that behalf. That Mohammad Haneef though son of the proprietor was not a partner and he had not been, authorized to give that undertaking. That his writing or admission of liability could not bind the defendant firm.


12. It has on the other hand been argued by Mr. Shabir on behalf of the plaintiffs that the plaintiffs were appointed as commission agents by the defen dant firm to do their business .in Karachi. That there was a series of transac tions and the various amounts paid were credited while the amounts spent on account of the defendants were debited in their account. The last item was the credit of sale proceeds of cotton on 19‑11‑1965. The suit having been filed in respect of the balance of account was not thus time‑barred because it was current and running account between the parties. That under the circum stances, it has not been stated in the plaint that the suit is within time on account of fresh period of limitation starting from the date of acknowledg ment in writing. There can be no doubt that there was a running account. of the defendants with the plaintiffs and various sums were being received by the defendants or were being paid to the plaintiffs, without settlement of the accounts. It cannot, therefore, be said that each item related to separate and distinct transaction which became time‑barred after three years.


Issue No. 7


13. This issue relates to the question of liability of the defendant in respect of forward contracts which according to them were by way of wager and therefore void. This is in fact the most important issue in .the whole suit, The very recital in the plaint para. 4 is that in respect of these forward contracts the differences in the contract price and the market price were to be settled and paid. That after the date of delivery the contract had to be settled by mutual agreement. It has not been alleged that any deliveries were to be actually made by any of the parties. It has also been admitted that to settle these forward sales, because the prices were steadily rising, the plaintiffs had to enter into forward contracts for purchase of the same quantity and the difference was actually paid by them. At no time did the plaintiffs call upon the defendants to deliver the subject‑matter of these contracts to the pur chasers named in the contracts. A wagering contract has been described in Halsbury’s Laws of England, 3rd Edition, Volume 18 on page 169, as one by which two persons mutually agreed that on determination of a future un certain event one shall win from the other an I the other shall pay a sun of money, there being no other real consideration for the making of such con tract. In cases of such contracts the intention of the parties is to be determined as a question of fact. It is to be seen whether actual delivery of the goods is contemplated or only the differences are required to be paid. All contracts by way of gaming or wagering are void and no action can he brought by the winner on a wager, either against the loser or the stake holder to recover what is alleged to be won. In England before the passing C of the Gaming Act of 1892, merely the gaming and wagering contracts were void and unenforceable. No taint of illegality attached to a transaction whereby one man employed another to make bets for him. The ordinary rules which govern the relation of principal and agent applied in such a case. Section 1 of the Gaming Act, 1892, however, altered the law in this respect, and any promise express or implied to pay any person any sum of money by way of commission, fee, reward or otherwise in respect of any such contract, or of any service in relation thereto, also became void. The expression money paid includes money paid by the agent in respect of such transactions on behalf of the principal. Thus in England an agent cannot recover sums paid by him on his principal’s behalf, though he remain accountable to his principal for the proceeds of bets proved to have been received by him. In our country, however, the trend of decisions has been that the contracts may be wagering but if they are made through the brokers or commission agents who are not concerned with the nature of the transactions and who carry on business for their principal in consideration o the commission charges, then the transaction between the principal and the agent is not necessarily a wagering contract nor one against public policy. Thus where plaintiff a commission agent bets in his own name for the defendant and pays the losses, the plaintiff can recover from the defendant the sums so paid. But an agent so authorized to enter into wagering con tract can claim indemnity from the principal only upon actual proof of payment, for there is no legal liability upon the agent to make payments in respect of wagering transactions.


In Bhagwandas Parashram v. Burjorji Ruttonji Bomanji (15BLR85), the plaintiffs Bhagwandas Parashram a firm of Pukka Adatias in Bombay filed a suit to recover from the defendant the balance in respect of transactions arising from the certain forward contracts in cotton agency. The defendant pleaded in substance that the transactions relied on by the plaintiffs were wagering and he was not liable to be sued on them. It was held by Meeman, J. that where a Pukka Adatia seeks to recover from the defaulting client the amount he has been obliged to pay on his, account, it becomes on the face of it almost impossible to say that as between him and his client the defence of wagering could succeed.


In the above case on appeal the Appellate Bench of the High Court agreed with the finding of the trial Judge on all the issues except issue No. 3 which was in these term;, “Whether the transactions mentioned in the plaint are not wagering transactions and whether the plaintiffs were not aware of the defendants’ intention to deal in differences only?” On this issue the appellate Court held in favour of the defendant and dismissed the suit. From that decree passed in appeal the plaintiff moved the Privy Council. It was observed by Sir Lawrence Jenkins (A I R 1917 P C 101) as under:‑


“The plaintiffs acted in conformity with the tears of their employment when they made tie contracts in exercise of the authority conferred upon them and they became liable for their performance. They also became entitled to be indemnified by their employer the defendant against the consequences of the acts done by them, unless those acts were unlawful. There is no suggestion that the acts of a pakka adatia, as such are unlawful; on the contrary, pakki adat dealings are well established as a legitimate mode of conducting commercial business in the Bombay market. No doubt the contract of a pakka adatia, as that of anyone else, may be by way of wager; but can it be said that the employment of the plaintiffs by the defendant was of this description?”


As the plaintiffs had carried through the transactions as pakka adatias of the defendant, the rice or the fall of market was matter of no concern to them, except so far as it might enhance the risk of recovering complete indemnity from their employer. Their right was their commission and to be indemnified against losses, as incident of their employment. Their Lordships, therefore, held that there was no ground for setting aside the decree of the Court of the first instance and they accordingly reversed the decree of the High Court on appeal and dismissed the appeal with costs.


T would neat quote the decisions of the Lahore High Court on this issue. In A I R 1928 Lah. 420, it was observed that if an agent while acting on behalf of his principal, incurred losses in dealing with the third parties and as between third party and the agent, accounts have been settled and the agent has incurred a liability which has become enforceable, the principal is liable to the agent to the extent of such liability. In this decision, the principles laid down in Bihari Lal v. Parbhulal (130 P W R 1908) the Full Bench decision were followed, that if plaintiffs made any payment or adjusted accounts in the manner stated therein on the basis of a liability incurred on wagering transactions, the plaintiffs would no doubt be entitled to recover the amount from their principals. Similar view was taken in the subsequent decision of the same Court is A I R 1932 Lah. 356, as under:‑


“A contention was raised that these nazrana contracts were really wagering contracts and therefore no suit could be brought on the basis of such transactions. This matter has to my mind been definitely settled as far as this Court is concerned by the decision of a Full Bench in Bihar! Lal v. Parbhu Lal, where it was definitely held that an agent can recover monies paid out by him on behalf of his principal even on wagering contracts. It was further held that a set‑off or adjustments in the accounts of third party should be treated in the same footing as cash payments and therefore I consider that the claim as brought by the plaintiff is one that falls within the decision of the Full Bench and that the monies are claimable.”


In A I R 1935 Lah. 761, reliance was placed on the Full Bench ruling of the Punjab Chief Court reported in 130 P W R 1908 and it was observed that when the defendants employed plaintiffs to enter into wagering transac tions for the defendants’ gain or loss as the event might be, the contracts between the defendants and the plaintiffs was not itself a wagering one.


Plaintiffs stood to lose nothing and to gain nothing beyond their commission. Defendants on the one hand and the third parties with whom plaintiffs were to enter into gambling transaction on the other, alone stood to win or lose upon an uncertain future event. , This being so, and wagering transaction being not forbidden by law, but only being a kind of transaction which the Courts are by law precluded from enforcing, it follows that when a party in the position of plaintiffs in the present case, in pursuance of his agreement with his employer pays a sum of money to a winner, the employer must recoup him.


In A I R 1940 All. 95, it was held that “when a person enters into a wagering contract through another’s agency, the latter can recover losses on those contracts, provided he proves that either he paid those losses to the person with whom those contracts were entered into, or to their assignee or incurred a pecuniary liability to make good those losses and that liability was still enforceable against him”.


Same view has been taken in A I R 1951 Nag. 392, wherein it has been held that “where an agent is authorized to enter into a wagering contract by the principal and he enters into a wagering contract with third person on behalf of the principal, the agent can claim indemnity from the principal only upon proof of actual payment to third person. Agent cannot say that he has become liable to third person because there is no legal liability upon him in respect of wagering transactions. Even when the contracts which a person asked his agents to enter into are of a wagering character, an agreement entered by him with the agent to pay him commission is not rendered void, as it is only collateral to a void contract”.


There are some contrary views also held by the High Courts in certain cases but they are distinguishable. The law on the liability of principal vis‑a‑vis the agent in cases of wagering transactions has been well discussed by MacLeod, C. J. in A I R 1921 Bom. 238. In that judgment the observations in the earlier Bombay cases of Jankin, C. J. have been quoted. That the contract between the principal and the agent is one of the employment for reward, as the pakka adatia in effect undertakes or guarantees to find goods for cash or cash for goods or to pay the differences. The decision in Thaker v. Hardy ((1878) 4 Q B D 685) has also been quoted, that where a broker entered into contract on behalf of the defendant upon which he became personally liable and sued the defendant for indemnity, it was held that whenever one person employed another to do a lawful act which exposes him to liability, there was an obliga tion to indemnify, and what the plaintiff was employed to do was to buy and sell on the stock exchange and everything he did was perfectly legal in spite of the fact that the defendant was gambling in differences and the plaintiff knew that he was gambling. MacLeod, C. J. however, found provision similar to the Gaming Act, 1892 of England (quoted above), in section 1 of the Bombay Act III of 1865, which made all contracts `in furtherance of any gaming or wagering to be null and, void. He accordingly held that when the defendants employed the plaintiffs to make bets on the rise and fall of the cotton market and the plaintiff knew that be encouraged the defendants to give them orders for making bets, these were in furtherance of wagering, pure and simple, there being no intention to give delivery of a single bale but to adjust by payment of differences only.


There was, however, no similar law applicable in Pakistan in the year 1965 declaring such collateral agreements in furtherance of wagering and gaming to be unlawful. There is no section analogous to section 1 of Bombay Act III of 1865, in the West Pakistan Prevention of Gambling Ordinance, of 1961, to render such collateral contracts, void. Accordingly the general law as provided in section 30, Contract Act, has to be followed, which makes the wagering contracts void but not the contracts entered into by principals with the agents in respect of such wagering contracts.


Reverting to the contrary decisions, in A I R 1940 All. 182, it has been observed that “where a contract between a pakka adatla and its constituent provides that there should be no delivery but only differences should be paid by one party to the other and that the constituents would have no right to enquire from the pakka adatia as to whom he had to pay any losses in respect of transaction in question, the contract is a wagering contract and cannot be enforced.” This decision was given on the ground that a contract between pakka adatia on one side and his constituent on the other is a contract between them as principals and the pakka adatia does not act in such cases as an agent of his constituent. On similar considerations, it was held in A I R 1954 All. 789, that such wagering contracts could not be enforced in view of the section 30 of the Contract Act. But these provisions apply to the wagering contracts themselves and not to contracts with agents to assist in entering into such contracts. This position has been clarified in A I R 1941 Cal. 125, that “where a broker acts on behalf of his customer and the customer gambles, the customer cannot set up a plea of gaming and wagering against the broker’s claim. It was observed in the course of that judgment as under:‑


“I am satisfied that the plaintiff acted throughout as a broker and made nothing out of these transactions except his brokerage. It is true that the defendant never intended to give or take delivery and was simply ,gambling in differences. But there is nothing whatever to show that the plaintiff was a party to those gambling transactions. It takes at least two to make a gaming and wagering contract, and while the defendant no doubt never had any intention except to gamble, I am satisfied that the plaintiff was no party to any gaming or wagering .contract and simply carried out his instructions as a broker. Whether the defendant gambled or not was no business of his. It was imma terial to him what the defendant chose to do so long as he received his brokerage or commission on each transaction. There can be no doubt that where a broker acts on behalf of his customer and the customer gambles, the customer cannot set up a plea of gaming or wagering against the broker’s claim. It was accordingly held that the plaintiff was entitled to recover, for the employment of the plaintiff by the defendant was not against public policy, and was not illegal at common law, and further was not in the nature of gaming and wagering contract against the provisions of the Gambling Act.”


The plaintiffs in the present suit are a limited company doing cotton business as commission agents and the commercial transactions entered into by them are recognized by the Karachi Cotton Association and do not come under the gaming laws in force in this Province. Under these circumstances, any collateral contracts with the commission agents for payment of the g losses or commission cannot be held to be unenforceable, especially when the .commission agents have incurred liability by making payments on behalf of the defendant. I accordingly hold that the defendant is liable to reimburse the plaintiffs for the amounts paid on his behalf in respect of these transactions including the interest on such payments and commission charges. The issue is answered accordingly.


Issues Nos. 8 and 9


The plaintiffs are thus entitled to recover the expenses incurred by them on behalf of their principals together with their commission as per statement of accounts filed by them. The suit is accordingly decreed for Rs. 96,486.80 against Illahibux Proprietor of Khairuddin‑Rukunuddin the defendant. together with interest at 6 per cent. from the date of the suit till payment and costs of the suit.


S. A. H. Suit decreed.