Delhi Cloth and General Mills Co. v. Harnam Singh
AIR 1955 SC 590
Case Summary
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Full Case Details
Bose, 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
carryingon business at Delhi and other places and has its head office at Delhi. One of the places at
whichit carriedon businessbeforethepartitionwas Lyallpur. - The plaintiffs’ case is that they carried on business with the defendant company for some
three or four 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.
Whenthere was an adverse balancethe plaintiffs paid the defendant interest: seethe plaintiffSardari
Lal asP.W.3. - On 28-7-1947 the accountstoodin the plaintiffs’ favour. There was a balanceof Rs. 79-6-6
lyingto their credit plus a deposit of Rs. 1,000 as security. On that day they deposited a further Rs.
55,000bringingthebalanceintheirfavourupto Rs. 56,079-6-6. - The defendant company delivered cloth worth Rs. 43,583-0-0 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 plusinterest. - The claimwas decreedfor Rs. 12,496-6-6 andthis was upheldon appealto the High Court.
The defendantappealshere. - The defendantadmitsthe factsset out above but defendsthe actionon the followingground.
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 became evacuees and the Pakistan Government froze all evacuee assets and later
compelledthe defendant to hand them over to the Custodian of Evacuee Property in Pakistan. The
defendant is readyand willingto paythe moneyif the Pakistan Government will release it but until
it does so the defendant contendsthat it is unableto payand is not liable. The onlyquestion is, what
are the rights and liabilities of the parties in those circumstances? The amount involved in this suit,
thoughsubstantial, is not largewhencomparedwith the numberof claims by and against personsin
similar plight. The defendant itself is involved in many similar transactions. A list of them appears
in Ex. D-11. Mohd. Bashir Khan, D.W. 1, says that the total comes to Rs. 1,46,209-1-9. The
defendanthasaccordinglychosento defendthisactionas a test case. - The further facts are as follows. At the relevant period, before the partition, cloth was
rationed and its distribution controlled in, among other places, the Punjab where Lyallpur is situate.
Accordingto the scheme, quotas were allotted to different areas and the manufactures and supplies
of cloth could onlydistribute their cloth 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 supplies themselves had a retail shop or business in a given area, then the quota 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 holders.
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 whatever the exact status of the
Lyallpur mills maybe, it is clear from the evidenceand the documentsthat the General Manager of
thesemillconductedthedefendant’scottonbusinessat Lyallpur. - It seems that the details 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
Delhito the District Magistrateat Lyallpur. Those letters range in date from 3-1-1946 to 19-4-1947:
(Exs. P-5toP-12).
They are all in the same form, onlythe figures and dates differ. It will be enough to quote the
first, Ex. P-5. It is dated 3-1-1946 and is from the Central Marketing Organisationof the defendant
company, the Delhi Cloth and General Mills Co. Ltd. It is written from Delhi to the District
Magistrate, Lyallpur, andis as follows:
“The District Magistrate,
Lyallpur.
Re: Cloth Distribution Scheme.
Dear Sir
Ref: Letter No. 15841-CL-(D)-45/8342 of 24th Oct. 1945 from Secretary, Civil Supplies
Deptt., Punjab Govt., Lahore.
Kindlynotethat we haveallotted 28 bales for your district for the monthof January1946. Out
of this a quantity of 18 bales will be dispatched to our Retail stores in your district/State and the
balanceof 10 baleswillbe availablefordeliveryto yournominatedimporter.
We shall be obliged if you kindlyissue instructionsto your nominatedimporterto collectthese
goodsfromus within15 daysof the two datesfor deliveryfixed, namelybythe 20thof Januaryand
5thof February1946 respectively. It maybe notedthat the first halfquota willlapse in casedelivery
is not takenby youbytheformerdateandthesecondhalfwilllapseif not takenbythe latterdate.
Yours faithfully,
D. C. &; Gen. Mills Co. Ltd.”
In each case a copy was sent to the plaintiffs marked as follows:
“Copy to nominated importer:- Jagat Singh Harnam Singh, Cloth Merchants, Lyallpur”. - The Indian Independence Act, 1947 was passed on 18-7-1947 and the district 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 17-2-1948andtold himthat –
“The amount deposited by the non-Muslim dealers should not be refunded to them till further
orders”. (Ex.D-1). - The defendantdid all it could, shortof litigation, to protestthisorder and to tryand 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 (Ex. D-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
wererepeatedbythe Custodian(Ex. D-9). - Meanwhile, the plaintiffs, who by then had shifted to Delhi, made a series of demands on
the defendantin 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 is 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
refundswithouttheordersof theWest PunjabGovernment. - On 15-10-1949 the Ordinance of 1948 was replaced by Ordinance No. XV of 1949 (Ex.
D-26)butthat made no differenceto thelawaboutevacueefundsandproperties. - On 4-7-1950the plaintiffs served the defendant with a noticeof 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 plaintiffssaying-
“We confirm that the sum of Rs. 11,496-6-6 and Rs. 1,000 are due to youon accountof your
advance deposit and security deposit respectivelywith our Lyallpur Cotton Mills, Lyallpur, and the
sum will be refunded to you by the said Mills as soon as the 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’sreply did not satisfythe plaintiffs, so they instituted the present suit on 16-
12-1950. - After the suit, the defendant’s Managing Director wrote personallyto the Joint Secretaryto
the Government of Pakistan on 2-4-1951 but was told on 21-4-1951 that the matter had been
carefullyexamined and that the moneymust be deposited withthe 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 Ordinance was promulgated on 9-5-1951 (Ex. D-27) exempting “cash
deposits of individualsin 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 an
orderon 6-11-1951 directingthat the depositsbe made by the 15thof the that month,”failingwhich
legal action will have to be taken against you”. (Ex. D-10). The money was deposited on 15-11-
1951on thelastdayof grace(Ex.D-12). - The first questionthat we mustdetermineis the exact natureof the contract fromwhichthe
obligation which the plaintiffs seek to enforce arises. The sum claimed in the suit, aside from the
interest,is madeup of threeitems:
(1) Rs. 79-6-6outstandingfroma previousaccount;
(2) Rs. 11,496-6-6beingthebalanceof a sumof Rs. 55,000depositedon 28-7-1947;and
(3) Rs. 1,000assecurity. - The three items appear to be linked up but we will, for the moment, concentrate on the
largest, the depositof Rs. 55,000. Bothsideshavespokenof 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 whichsortthiswasbeforewe can applythe law. - Unfortunately, the evidence is meagreand scrappy, so we havebeenobligedto piecemuch
disjointedmaterialtogether to form an intelligible pattern. It is admitted that the distribution of cloth
in this area was controlled by the Governmentof Punjab(in undivided India) at all materialtimes. It
is also admitted that the plaintiffs were, what were called, “Government nominees” for Lyallpur. In
the plaint the plaintiffs also called themselvesthe “reservedealer”. 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 which the plaintiffs relied very
strongly, also point tothat; 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 couldonlykeep 18 for its own retailstores in the monthof January1946. In Aprilthe 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 and29: 26 fortheplaintiffsandthedefendant’sstoresrespectively. - 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 issuedfrom time to time in much the same way as abankerhands out moneyto 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 above and from
the followingfacts:
(1) Bothsideshavecalledthepaymenta “deposit”in theirpleadings;
(2) The plaintiffs speak of receivinggoods “againstthis deposit”(paragraph 3 of the plaint) and
Mohd. BashirKhan(D.W.1) of deliverybeingmade”againstthisadvance”;
(3) The plaintiff Sardari Lal (P.W. 3) says that the parties have been carryingon dealings for 3
or 4 years and that “advances used to be made to the mills from time to time. Sometimes our
balance stoodatcredit”;
(4) Sardari Lal says that when their balance was on the debit side, they paid the defendant’s
interest but the defendantpaid no interest when the balance was in the plaintiffs’ favour. (This is the
positionwhenthereis an overdraftina bank);
(5) Therewas a balanceof Rs. 79-6-6 standingin the plaintiffs’ favour whenthe deposit of Rs.
55,000 wasmade;
(6) The plaintiff said in their letter (Ex. P.W. 4/1) to the defendant that they had a “current
account”withthe defendant in which a sum of Rs. 11,496-6-6 was in “reserveaccount”. This figure
of Rs. 11,496-6-6is madeup byincludingtheoldbalanceRs. 79-6-6in thisaccount;
(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 figureincludesRs. 79-6-6.
(8) All this 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 indicated the contrary is the fact that the defendant has
listed this money in Ex. D-11 under the head “Purchaser’s advance”. But the mere use ofthis term
cannotalterthesubstanceof the transactionsanymorethanthe mereuseof theword”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
considerother factors. But in this case we need not speculatebecause the plaintiffs have themselves
explained the sense in which the term “Purchasers advance account” is used. In their statement of
thecasewhichtheyfiledhere,theysay-
“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
balancehadto beadjustedperiodica ly”. - 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
correspondenceand in the pleadings and evidence, suggeststhat the defendant was dealingwith the
plaintiffs in their capacityof “Government nominees” and that, in its turn, importsthe conditionthat
the dealings would stop the moment the plaintiffs ceased to occupythat privileged 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 sales had to be to the
Government nominees. Therefore, if Government withdrew their recognition, the defendant would
not havebeen able to sell to the plaintiffs any longer and it is fair to assume that the parties did not
contemplatea continuanceof their relationship in such an eventuality. But, as this was not a definite
contract for the supplyof a givenquantifyof goods whichwereto be delivered in instalments but as
courseof dealingswitha runningaccount, it is also reasonableto infer that the partieswere at liberty
to put an endto their businessrelationship at anytimetheypleased by givingdue noticeto theother
side and in that eventwhicheverside owed moneyto the other would have to pay. But, eitherway,
the place of performance would, in these circumstances, be Lyallpur. We stay 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 on 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-to-the minute stateof the accounts. In the circumstances, it is reasonableto assume, as
in the case of bankingand insurance(matters we shall deal with presently), that on the termination
of the contract the balance was to be paid at Lyallpurand not elsewhere. That localises the placeof
Primaryobligation. - 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 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
easilydeliver the goods to the plaintiff’s as usual despite withdrawal of the recognition. Everything
thereforepointsto the fact that the noticeof terminationwould have to be given at Lyallpurand the
obligation to return the balance would not arise until this notice of termination was received. That
obligationwouldthereforenecessarilyariseat Lyallpur. - The plaintiff’s learned counsel argued very strongly that the defendant’s Lyallpur business
was carried on from Delhi and that the accountswere kept there, that there was no branch office at
Lyallpurand that Lyallpur had no independentlocal control of the business. He relied on the letters
writtenbythe defendantto the District Magistrate, Lyallpur, aboutthe allotmentsof quotas(Exs. P-
26
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 Lyallpurin which he says that a
“completelist showingthe list of all non-Muslims falling under item (3) withthe amount to be
paidhasbeenaskedforfromour HeadOfficeandwillbe submittedas soonas received”.
Counselcontendedthat the Lyallpurpeople had so little to do withthe accountsthat theywere
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
replyto a letter from the DeputyCustodianof 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, whichhas not been filed. Whenwe turnto the list that was eventually
supplied from Delhi (Ex. D-11) we find 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 a position to supply that sort of information. The
defendant’saccountantat Lyallpur,SewaRam(P.W. 4), saysthat-
“Purchasers’ deposits at Lyallpur were not recorded in the books of the defendant at Delhi but
statements used to be dispatched from there to Delhi. An account book was prepared from
statements receivedfrom 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 onlyplace from where a generaloverallpicture(which appearsto be what was asked
for) couldbeobtained. - Now, the plaintiffs resided at Lyallpur at all relevant times and the defendant carried on
business there though a local General Manager. We do not know where the contract was made but
we do knowthat the plaintiffscontractedin a specialcapacitythat was localized 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 any where else. We know that there was a runningaccountant
and that that accountantwas kept at Lyallpur, and we have held that the “debt” did not becomedue
till the defendant was given notice at Lyallpurthat 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 plaintiffsfrom
Lyallpur which made further performanceof 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
terminationand arose at Lyallpur, but if a demand for paymentis essential, then it would, alongthe
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 elements of
this contract, that is to say, the contract out of whichthe obligationto pay arose, were mostdensely
grouped at Lyallpurand that that was its naturalseat andthe placewith whichthe transactionhad its
closest and most real connection. It follows from this that the “proper law of the contract”, in so far
as that is material,wasthe Lyallpurlaw. - 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- - It is understandablethat the plaintiffs, who had to flee for their lives, wouldhaveno copiesof
their correspondence, but it is a matter for comment that the demand which is filed (Ex. P.W. 4/4)
does not referto an earlierdemandor demands.The defendantwas askedto produceall the
correspondence because the plaintiffs had lost their own files. The defendant produced all we have
on recordand no suggestionwas madethat anythinghad beensuppressed. Consequentlywe are not
preparedto accepttheplaintiffs’statementandwe holdthattherewasno demandbefore3-1-1949. - 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, the demandcould
not been made at Lyallpur, and apart from 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
absolvedfromtheneedto baseon sotechnicala ground. - Now at the dateof the demandthe PakistanOrdinance(Ex. D-26) was in force and under it
the defendant was prohibited from payingthe moneyto the plaintiffs who were evacuees according
to Pakistan laws. The defendant was directed, instead, to deposit the money with the Deputy
Custodian of Evacuee Property. This was done on 15-11-1951 (Ex. D-12) and the deposit was
madealongwithothersimilardeposits. - We now have to determine the legal liabilities which arise out of these facts. This raises
complex questions of private internationallaw, and two distinct lines of thought emerge. One is that
appliedbythe English Courts, namely, the lex situs; the otheris the one favouredby Cheshire in his
bookon PrivateInternationalLaw, namely,the “properlawof thecontract”. - The English approach is to treat the debt as property and determine its situs and then, in
general, to applythe law that obtainsthere at the date whenpayment is due. Butthe difficultyof the
Englishview is that theyhave different setsof rules for ascertainingthe situs, withthe result that the
situsshiftsfromplaceto placefordifferentpurposes,alsothat it isdeterminedbyintention.
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
assignableand it is treated as propertyin India under the Transferof Property Act which calls it an
“actionable claim”: sections 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
ruleshaveto be framedalongarbitrarylines. - Cheshirepoints 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
assignmentsbecause it is not possibleto fix the situation of a debt under the situs rule in one place
and onlyone place. Speaking of that Cheshire, quoting Foote, where Footesays that the assignment
of a chose in action arising out of a contract is governed by the “proper law of the contract”
paraphrasesFootethus at page450 –
“If we understand him correctly, the appropriate law is not the ‘proper law’ (using that
expressionin its contractual sense) of the assignment, but the properlaw of the original transaction
out of whichthe chosein actionarose. It is reasonableand logicalto refermostquestionsrelatingto
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 in different
countries, no confusion can arise from a conflictof laws, sinceall questions are referredto a single
legalsystem”. - The expressionthe “properlaw of the contract” has been carefullyanalysedby Cheshire in
Chapter VIII of his book. In Mount Albert Borough Council v. Australasian Temperance and
General Mutual Life Assurance Society, 1938 A.C. 224 Lord Wright defined it at page 240 as
“that law which the English or other Court is to apply in 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 Simondsdescribedit as
“the system of law by reference to which the contract was made or that with which the
transaction has its closest and most real connexion”. Bonython v. Commonwealth of
Australia,.1951 A.C. 201, 219) - Cheshiresets out the definition given by some American Courts at page 203 and adoptsit:
“It is submittedthat, at any rate withregard to the questionof validcreation, the properlawis
the law of the country in which the contract is localized. Its localization will be indicatedby what
maybe called the groupingof its elementsas reflectedin its formationand 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 substantiallyassociated and in which lies its natural seat or centre
of gravity”. - 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. Cheshirepoints out at page 202 that the “the subjective theorymayproduce strangely
unrealistic results”. It is also obvious that difficulties will arise if the contract is illegal or against
publicpolicyaccordingto the lawsof the countryin which it is soughtto be enforcedthoughlawful
according to the laws of the country which the parties choose: see Lord Wright in Mount Albert
Borough Council v. Australasian Temperance, etc. Society, 1938 A.C. 224 at page 240. Cheshire
preferstheviewof an AmericanJudgewhichhe quotesat page203-
“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 consideringis 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
obtainwhenthat is thecase. - The most usual way of expressing the law in that class of case is to say that an intention
must be impliedor imputed. In the Bank of Travancore v. Dhrit Ram, 69 I.A. 1, Lord Atkin said
that when no intention is expressed in the contract the Courts are left to infer one by reference to
considerationswhere 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
case1938 A.C. 224, Lord Wrightput it thiswayat page240 –
“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, theyought or would have intended if they had thought aboutthe questionwhen theymade
thecontract”. - But, to us, it seemsunnecessarilyartificialto impute an intentionwhenwe know there was
none, especially in a type of case where the parties would never have contracted at all if theyhad
contemplatedthe possibilityof eventsturning out as theydid. In our opinion, what the Courtsreally
do, whenthere is no expressprovision, is to applyan objectivetest, thoughtheyappear to regardthe
intention subjectively, and that is also Cheshire’s conclusion at page 201 where, after reviewing the
English decisions, hesays-
“In other words, the truth maybe that the judges, though emphasizing in unrestricted terms the
omnipotenceof intention, in fact do nothingmore than impute to the parties an intention to submit
theircontractto the lawof thecountrywithwhichfactuallyit is mostcloselyconnected”. - If driven to a choice, we would prefer this way of stating the law but we need not decide
this because, so far as the present case is concerned, the result is the same whether we apply the
properlaw of the contract or the Englishrules about the lex situs. It maybe that in some futurecase
this Court will have to choose between these two views but the question bristles with difficulties
and it is not necessaryfor us to make the choicehere. All we wish to do here is to indicate that we
haveconsideredbothandhaveenvisagedcaseswhereperhapsa choicewillhaveto bemade. - We gatherthat Englishjudges fall back on the lex situs and make rules for determiningthe
position of a debt for historical reasons. Atkin, L. J. saidin New York Life Insurance Company v.
Public Trustee, ((1924) 2 Ch. 101, 119) that the rules laid down in England are derived fromthe
practice of ecclesiastical authorities in granting administration because their jurisdiction was limited
territorially.
“The ordinaryhad only a jurisdiction within a particular territory, and the question whether he
should issue letters of administration depended upon whether or not assets were to be found within
his jurisdiction,and thetest in respectof simplecontractswas: Wherewasthe debtorresiding? …….
the reason why the residence of the debtor was adopted as that which determined where the debt
was situate was because it was in that place where the debtor was that the creditor could, in fact,
enforce payment of the debt”.
(See also Dicey’s Conflict of Laws, 6th edition, page 303). The rules, therefore, appearto have
beenarbitrarilyselectedfor practicalpurposesandbecausetheywerefoundto be convenient. - But despite that the English Courts have never treated them as rigid. They have only
regardedthem as prima facie presumptions in the absence of anythingexpress in the contract itself:
see Lord Wright’sspeech in Mount Albert Borough Councilcase 1938 A.C. 224 at page 240. Also,
manyexceptionshave been engraftedto meet modern conditions. Atkin, L.J. drawsattentionto one
in New York Life Insurance Company v. Public Trustee, (1924) 2 Ch. 101, 119) at page 120
where hesays-
“therefore, cases do arise where a debt may be enforced in one jurisdiction, and the debtor,
being an ordinary living person, resides elsewhere”.
So also Lord Wright in Mount Albert Borough Council case 1938 A.C. 224 at page 240 –
“It is truethat, whenstatingthis generalrule, thereare qualificationsto be bornein mind, as for
instance, that the law of the place of performancewill prima facie govern the incidents or mode of
performance,that is,performanceas contrastedwithobligation”.
and at page 241 he says –
“Again, different consideration may arise in particular cases, as, for instance, where the
stipulated performance is illegal by the law of the place of performance”.
And so also Lord Robson in Rex v. Lovitt, 1912 A.C. 212 at page 220 –
“It cannot meanthat for allpurposesthe actualsituationof the propertyof a deceasedowner is
to be ignored and regard had onlyto the testator’s domicile for executors find themselves obliged in
order to get the property at all to take out ancillary probate according to the locality where such
property is properly recoverable, and no legal fiction as to its ‘following the owner’ so as to be
theoreticallysituateelsewherewillavailthem”.
And he says at page 221 that these rules are only “for certain limited purposes”.
In banking transactions the following rules are now settled: (1) the obligation of a bank to pay the
chequesof a customerrestsprimarilyon thebranchat whichhe keepshisaccountandthebankwas
rightlyrefuse to cash a cheque at any other branch: Rex v. Lovitt, (1912) A.C. 212 at 219, Bank of
Travancore v. Dhrit Ram, 69 I.A. 1, 8 and 9) and New York Life Insurance Company v. Public
Trustee, (1924) 2 Ch. 101, 119) at page 117; (2) a customer must make a demand for payment at
the branch where his current account is kept before he has a cause of action against the bank:
Joachimson v. Swiss Bank Corporation, (1921) 3 K.B. 110quoted with approval by Lord Reid in
Arab Bank Ltd. v. Barclays Bank, 1954 A.C. 495, 531). The rule is the same whether the account
is a current account or whether it is a case of deposit. The last two cases refer to a currentaccount;
the Privy Council case (Bank of Travancore v. Dhrit Ram, (69 I.A. 1, 8 and 9)) was a case of
deposit. Either way, there must be a demand by the customer at the branch where the current
account is kept, or where the deposit is made and kept, before the bank need pay, and for these
reasonsthe English Courts holdthat the situs of the debt is at the placewhere the current account is
keptandwherethedemandmustbe made. - This class of case forms an exception to the rule that a debtor must seek his creditor
because, thoughthat is the generalrule, there is nothingto prevent the parties from agreeing, if they
wish, that that shall not be the dutyof the debtor and, as Lord Reidexplains in the Arab Bank case
(1954 A.C. 495, 531) at page 531, a contract of current account necessarily implies an agreement
thatthatshallnot bethebank’sduty, otherwisethewholeobjectof thecontractwouldbe frustrated. - We have stressed the word “primarily” because the rules we have set out relate to the
primaryobligation. If the bank wronglyrefuses to pay when a demandis made at the proper place
and time, then it could be sued at its head office as well as at its branch office and, possibly,
wherever it could be found, though we do not decide that. But the reason is that the action is then,
not on the debt, but on the breachof the contractto pay at the place specified in the agreement: see
Warrington, L.J. at page 116 and Atkin, L.J. at page 121 of New York Life Insurance Co. v. Public
Trustee, ((1924) 2Ch. 101). - Nowthe rules set out aboveare not confinedto the businessof banking. Theyare of wider
application and have also been applied in insurance cases: Fouad Bishara Jabbour v. State of
Israel,(1954) 1 A.E.R. 145 and NewYork LifeInsuranceCo. v. PublicTrustee,(1924)2 Ch. 101. - Similar considerations obtain in England when an involuntary assignment of a debt is
effected by garnishment. Cheshire has collected a list of English cases at pages 460 to 463 of his
Private International Law from which we have quoted above. He sums up the position at page 461
thus-
“It is difficult to state the rule with exactitude, but it is probably true to say that a debt is
properly garnishable in the country where, according to the ordinary usages of business, it would
normally be regarded as payable”. - But whenall is saidand done, we findthat in everyone of thesecasesthe properlawof the
contractwas applied, that is to say, the law of the countryin which its elements were most densely
grouped and with which factually the contract was most closely connected. It is true the judges
purport to applythe lex situs but in determiningthe situs they apply rules (and modifythem where
necessary to suit changing modern conditions) which in fact are the very rules which in practice
would be used to determine the proper law of the contract. The English Judges say that whenthe
intention is not express one must be inferred and the rules they have made come to this: that as
reasonable men they must be taken to have intended that the proper law of the contract should
obtain. The other view is that the intention does not govern even when express and that the proper
law must be applied objectively. But either way, the result is the same when there is no express
term. The “properlaw” is in fact appliedand for presentpurposes it does not matterwhetherthat is
done for the reasons given by Cheshire or because the fluid English rules that centre round the lex
situs lead to the same conclusion in this class of case. - That, however, raises a further question. Which is the proper law? The law that obtains
when the contract was made and the obligation fashioned or the law in force at the time when
performance is due ? Here again, we think the answer is correctly given by Cheshire at page 210,
quoting Wolff’s Private International Law, page 424, and Re. Chesterman’s Trusts (1923) 2 Ch.
466,478):
“A proper law intended as a whole to govern a contract is administered as ‘a living and
changing body of law’ and effect is given to any changes occurring in it before performance falls
due”.
This is what the English Courts did in New York Insurance Co. v. Public Trustee, (1924) 2
Ch. 101, Re. Banque Des MarchandsDe Moscou,(1954) 2 A.E.R. 746, Fouad Bishara Jabbour
v. State of Israel, (1954) 1 A.E.R. 145, and Arab Bank Ltd. v. Barclays Bank, 1954 A.C. 495,
529). They were all cases in which the law changed because of the outbreak of war and where
performance became impossible because of local legislation. In the last two cases, the debts vested
in the Custodian because of local legislation and payment by the debtor to the Custodian was
regarded as a good dischargeof the debt. The position in those two cases was just what it is here. - Counselargued that as Lyallpurwas part of India, when the contract was made, the Indian
law must be applied and that no differentintention can be imputed to the parties. But that is not the
law, as we understand it, whether we applythe “proper law” or the situs rules. The proper law will
be the law at Lyallpur applied as a living and changing whole, and this would have been the case
even if India had not been divided, because each State had the right to make different local laws
evenin undivided India, as witnessthe different moneylendinglawsand the cloth and graincontrol
orders: indeed this very case is an illustration of that, for the controls which gave rise to thisvery
contractwerenot uniformthroughoutIndia.
But evenapart from the “properlaw” the decisionof the privyCouncil in Arab Bank Ltd. v.
BarclaysBank,1954 A.C.495, 529) andof the QueensBenchDivisionin Fouad Bishara Jabbour
v. State of Israel, (1954) 1 A.E.R. 145 negatives this contention when an intention has to be
imputed or a clause in the contract implied. - It is necessary, however, to bear in mind that, under modern conditions, chose in action
arisingout of contract havetwo aspects:(1) as propertyand (2) as involvinga contractualobligation
for performance. The property aspect is relevant for purposes of assignment, administration,
taxationandthelike;thecontractualaspectforperformance.
In the present case, we are primarily concerned with the property aspect because the Pakistan
Ordinance regards debts as property and vests all evacuee property in the Custodian and requires
every person holding such property to surrender it to the Custodian on payment of penalties
prescribed by the Ordinance, and section 11(2) states that –
“Any person who makes a payment under sub-section (1) shall be discharged from further
liability to pay to the extent of the payment made”.
The payment was made and that, in our opinion, exonerated the defendant from further
liability. Such payment would operate as a good discharge evenunderthe Englishrules: see Fouad
Bishara Jabbour v. State of Israel, (1954) 1 A.E.R. 145 at page 154 where a number of English
authorities are cited, including a decision of the Privy Council in Odwin v. Forbes, (1817 Buck.
57).
That was alsothe resultof the decisionsin the followingEnglishcases, which are similarto
this, though the basisof the decisionswas the situs of the debtandthe multipleresidenceof
corporations: Fouad Bishara Jabbour v. State of Israel, ((1954) 1 A.E.R. 145), Re Banque Des
Marchands De Moscou (1954) 2 A.E.R. 746 and Arab Bank Ltd. v. Barclays Bank, (1954) A.C.
495, 529). - The same result follows from the decision of the Judicial Committee in the Bank of
TravancoreLtd.v. DhritRam,69 I.A.1, 9) where LordAtkinsaid-
“When consideration is being given to the question, what law did the parties intend to govern
the contract ? it seems proper to bear in mind that the promisor is a bank incorporated under
Travancorelaw with, apparently, some connectionwith the Stateof Travancore, and governed as to
its businessby any lawof Travancorethatmayaffectbanking “
The only difference between that case and this is that at the date of the deposit in this case
there was no differencebetween the laws of Punjab and Delhi on the present point. But they could
havedifferedevenif Indiahad not beendivided, as we have just pointedout. The Englishcases are,
however,inpointand we can see littlein principleto distinguishthemfromthiscase. - The learned counsel for the plaintiffs-respondents argued that even if the law is what we
have said, the Pakistan Ordinance does not apply to this case because “a cash deposit in a bank” is
excluded. The argument was based on the definitionof “property” in section 2(5) of the Ordinance.
But this is not a cash deposit in a bank as betweenthe plaintiffsand the defendant. It is a debt which
the defendantowes, or owed, to the plaintiffs, and the same definition states that “property” means,
among other things, “anydebt or actionableclaim”. The portionof the definition which speaks of a
“cash deposit in a bank” meansthat such a deposit is not to be treated as “property” for purposesof
the Ordinance as between the bank and the customer who owns or controls the deposit. We hold,
therefore, that whetherthe proper law of the contractapplies or the English law of situs in a case of
this kind, the defendant is exonerated because, the debt being”property”, the Ordinancedivestedthe
plaintiffs of ownership in it and vested the debt in the Custodian and at the same time interfered
with the obligation for performance by providing that payment to the Custodian shall operate as a
discharge oftheobligation. - But we wish to emphasize that we decide this because payment was in fact made to the
Custodian and that we express no opinion about what would happen in a case where there is no
payment and the defendant has no garnishable assets in Pakistan out of which the West Punjab
Government could realise the debt by attachment of the defendant’s property. Different conclusions
mightpossiblyariseinsucha case. - Lastly, it was urged that the Pakistan Ordinance is a Penal law and is confiscatory in
character, therefore, no domestictribunal will recognise it or give effect to it. That proposition is, in
anyevent, too widelystated, but we are unableto condemnthis law as opposedto the publicpolicy
of this countrybecause we have exactlythe same kind of laws here, as do other civilised countries
which find themselves in similar predicament or at the outbreak of war; see Arab Bank Ltd. v.
Barclays Bank, 1954 A.C. 495 and also Fouad Bishara Jabbour v. State of Israel, (1954) 1
A.E.R. 145, 157) and Re. Munster , (1920) 1 Ch. 268) where a like argument was repelled. We
hold that this legislation is not confiscatory. - Thesamerulesapplyto the itemof Rs. 79-6-6and to thedepositof Rs. 1,000 as security.
- The appeal succeeds. The decrees of the lower Courts are set aside. A decree will now be
passed dismissing the plaintiffs’ claim, but in the special circumstances of this case the partieswill
bear theirowncoststhroughout.
Appeal Allowed.
