QADEERUDDIN AHMAD, C. J.-This Letters Patent Appeal has been filed against the order of Mr. Justice Kadir Nawaz Awan dated 27th of September 1965, by which he accepted an applica--tion which was made by the respondent under subsection (2) of section 8 of the Arbitration Act, 1940 and appointed Mr. Iqbal Kazi, Advocate as the sole arbitrator.
2. The facts, which form the background, according to Mr. Shah Jamil Alam, are that Sultan Textile Mills Ltd. Was a private limited company and was the owner of two mills, one of them was known as Crescent Textile Mills and was situated in Karachi. The other was known as Sultan Textile Mills and was situated at Sargodha. The shareholders of the company belonged to two groups, one of which consisted of Mohammad Aslam and others, and the other of Mohammad Umar and others. In 1961 sanction was granted by the Textile Commissioner for the installation of a dyeing, bleaching and finishing plant at Karachi subject to the condition that the cloth, which was manufactured by the Sultan Textile Mills would also be processed at Karachi. A new company was, therefore, formed known as Sultan Industries Ltd. It was also a private limited company and Its shareholders also belonged to the same two groups, but the company was managed and run by the group which consisted of Mohammad Aslam and others.
3. In 1964 disagreements arose between the two groups and all the assets were divided by an agreement, dated the 12th of April 1965. Sultan Textile Mills of Sargodha fell to the share of the group which consisted of Mohammad Aslam and others and the Crescent. Textile Mills as well as the processing plant fell to the share of .The group which consisted of Muhammad Umar and others.
After the division the group which consisted of Mohammad Umar and others discovered that the sanction for installing the processing plant was transferred to Sultan Textile Mills, Sargodha. The group consisting of Muhammad Umar and others, -therefore, applied for the retransfer of sanction of Karachi and employed the services of Messrs Shatnd Enterprise of 22, Ohafoor Chambers, Victoria Roa4, Karachi, to provide professional and technical assistance required by it for getting the order of transfer cancelled and for obtaining sanction to establish a complete dyeing, bleaching and finishing plant at Karachi together with the entitlement to obtain a loan in foreign exchange of DM Rs. 23,00,000 through Industrial Development Bank.Of Pakistan in the name of Messrs Sultan Textile Mills or Messrs Crescent Textile Mills Ltd.. Karachi: An agreement was executed between Messrs Shamsi Enterprise and Messrs Sultan Textile Mills (Karachi) Ltd., where by Messrs Shamsi Enterprise undertook to provide the required professional and technical assistance for a consideration of Rs.
2,00,000. The undertaking was to obtain the sanction along with the cancellation of the order of transfer. This amount was to be deposited by Messrs Sultan Textile Mills, Karachi, with Commerce Bank Ltd., Victoria Road, Karachi, in a call-deposit account, but Messrs Shamsi Enterprise was not entitled to withdraw it without the written consent of Messrs Sultan Textile Mills, Karachi. The time limit was three months. Messrs Shamsi Enterprise was authorised to carry on correspondence on behalf of Messrs Sultan Textile Mills, Karachi. It was agreed that in the event of any difference of opinion the dispute will be referred to a sole arbitrator who was to be appointed by mutual consent.
4. The relevant part of the agreement, dated the 12th of April 1965, is reproduced below. In it the expressions "party of the first part" and "party of the second part" refer to Messrs Shamsi Enterprise and Messrs Sultan Textile Mills, Karachi, respectively :- "(1) That the party of the Ist part undertakes to provide the professional and technical assistance required for the processing of the application for the sanction of a complete dyeing, bleaching and finishing plant with the foreign exchange loan of DM 23,00,000 through. IDBP in the name of Messrs Sultan Textile Mills, Karachi on behalf of the party of the 2nd part.
(2) That the party of the Ist part will be required to get ail proceedings stopped which may have been initiated by Messrs Sultan Industries Ltd. For the sanction of the plant as referred to above. It will further be the responsibility of the 1st party that the sanction, if any, obtained by Messrs Sultan Industries Ltd. For the plant is cancelled in favour of the 3rd party.
(3) That the party of the Ist part has also undertaken to get the above-mentioned plant sanctioned in the name of Messrs Sultan Textile Mills (Karachi) Ltd., or Messrs Crescent Textile Mills, Karachi.
That the sanction will be obtained with the recommendation of transfer of foreign exchange loan of DM 23,00,000 through I. D. B. P. Granted to Messrs Sultan Industries Ltd. In favour of the party of the 2nd part.
(4) That In lieu of the services to be rendered by the party of the Ist part for doing the needful as referred to in silo clauses above, the party of the 2nd part has agreed to pay the sum of Rs. 2,00,000 (rupees two lacs) to the party of the Ist part as remuneration and fee as per detail below :-
(a) That in.,case the party of the Ist part is able to get the cancellation and sanction as referred to in clauses 2 and 3 above by the Investment Promotion and Supplies at a time, the agreed amount of Rs. 2,00,000 (Rupees two lacs) shall be immediately paid to the party of the Ist part by the party of the 2nd part on submission of Investment Promotion and Supplies sanction letter on the basis of the minutes of Central Permission Committee accepting the entitlement 2nd claim of the 2nd party with a copy endorsed to the IDBP for the transfer of foreign exchange loan in favour of 2nd party.
(b) That in case the cancellation as referred in clause 2 above is effected in the Ist instance with the proviso that the sanction shall be in favour of the party of the 2nd part on the basis of the minutes of Central Permission Committee a letter by Investment Promotion and Supplies accepting the entitlement and claim of the party of the 2nd is furnished the party of the Ist part shall be entitled to receive Rs. 1,00,000 (Rupees one lac) forthwith.
(c) The balance of Rs. 1,00,000 (Rupees one lac) shall be paid on the issuance of final letter of sanction as referred to in clause 3 above by the Investment Promotion and Supplies with a copy endorsed to the IDBP for transfer of loan granted to Messrs Sultan Industries Ltd , in the name of the party of the 2nd part.
(10) In case of any dispute or difference of opinion in respect of any if the matter covered by this agreement the same shall be referred to a sole arbitrator to be appointed by mutual consent of the parties above-named whose decision will be final on both the parties."
5. After the execution of the above agreement Messrs Shamsi Enterprise proceeded to fulfil its part of the contract and succeeded in obtaining a letter, dated the 15th of May 1965, from the Director, Textile Investment Promotion and Supplies, Government of Pakistan, whereby, according to it, it obtained more benefits than were envisaged in clause 2 of the agreement inasmuch as the order of transfer was cancelled and sanction for installing the proceeding plant was also granted to Messrs Sultan Textile Mills. Karachi. It claimed, therefore, to receive the first instalment of Rs. 1,00,000 but Messrs Sultan Textile Mills, Karachi, disputed its right to do so.
6. Notices were exchanged and thereafter an application was made by Mohammad Yousuf Shamsi, proprietor of Shamsi Enterprise under subsection (2) of section 8 of the Arbitration Act of 1940 for getting a sole arbitrator appointed through Court. That application was opposed by Messrs Sultan Textile Mills, Karachi, on two grounds mainly. One was that Messrs Shamsi Enterprise had not performed its part of the contract and the other was that the agreement, dated the 12th of April 1965, was itself void in terms of section 23 of the Contract Act.
7. The learned Single Judge heard counsel for the parties and came to the conclusion that Messrs Shamsi Enterprise was by virtue of letter, dated the 15th of May 1965, entitled to demand the payment of Rs. 1,00,000 that there was no evidence to prove that Messrs Shamsi Enterprise had exercised Influence 9n terms of illustration (f) of section 23 of the Contract Act so as to make the contract void and that a sole arbitrator could therefore be appointed in terms of clause 10 of the agreement.
8. This appeal has been filed to question the above order. Mr. Shah Jamil Alam did not dispute the correctness of the assertion that Messrs Shamsi Enterprise had performed its part of the contract and was entitled to demand a lac of rupees if the contract was held to be legally valid. He said that there were indications in the agreement to conclusion that Messrs Shamsi Enterprise purported to use its influence on officers of the departments of Government for monetary gain. For instance it is stated in clause 2 of the agreement that the proceedings initiated by the opposite-party would be stopped and that the sanction granted to it would be cancelled. This part of the job, according to counsel, by its very nature, was of a negative character and did not require professional skill and technical knowledge to perform it. It merely required exercise of influence on officers of various departments of Government. Such exercise of influence in lieu of financial advantage was according to counsel, illegal. He relied on section 23 of the Contract Act, Parkinson v. College of Ambulance Limited and another ((1925) 2 K B 1), Atlas Industrial and Trading Corporation, Karachi and another v. Dr. Jalll Asghar (PLD 1970 Kar. 241), John William Spencer Brownlow Egerton v. Earl Brownlow and others (23 L J Ch. 348), John William Spencer Brownlow Egerton v. Earl Brownlow (10 E R 359) and Montefiore v. Menday Motors Components Co. Ltd. (1918 (2) K B 241).
9. On the other hand the stand of Mr. Nusrat, counsel for the respondent was that the installation of the processing plant at Karachi was originally sanctioned for two mills but at the time of the division of assets it fell to the share of the respondent and the parties to that division were fully aware of it. The opposite group managed to get the sanction transferred to Sargodha thus leaving the respondent in the lurch. The respondent had in these circumstances to get the order of the transfer cancelled and to get the original order restored. This was not an easy object to achieve because whereas the transfer of the sanction to Sargodha left the Karachi mill without a processing plant, its retransfer to Karachi was to leave the Sargodha mill without that plant. A comparative study of the requirements of both the mills and superiority of the right of the Karachi mill In view of the original sanction combined with the division of assets by mutual consent had to be presented to the departments concerned and supported with figures, plans and drawings to satisfy each department's needs. According to counsel, Muhammad Yousuf Shamsi the proprietor of Shamsi Enterprise is a B. Sc. In Engineering and has studied Mathematics, Chemistry and Mathematical Engineering and carries on the business of engineering consultant.
10. Counsel argued that common law principles to the extent that they fell outside the scope of section 23 of our Contract- Act were not applicable, nor should they be applied without taking the difference in the circumstances of the two countries into consideration. He pointed out that section 23 of the Contract Act was apparently not even mentioned by learned counsel in Atlas Industrial and Trading Corporation, Karachi and another v. Dr: Jalil Asghar, and reliance was placed on generalisations -found in English judgments without drawing any distinction between the illegality of a contract and illegality in the performance of a valid contract. Such generali--sations made in the name of public policy were dangerous guidelines particularly because the concept of, public policy itself has been authoritatively described as an unruly horse" to ride. A contract to employ an agent even if he be a man of reputation as well as of influence owing to his status or skIli is not invalid per se. Therefore, illegality in the performance of such contract should be found as a matter of fact. The mere fact that an agent has to deal with Government officers and perform his functions for remuneration or reward cannot be Illegal. He cited Kalavagunta Venkata Kristnayya and others v. Kalavagunta Lakhsmi Narayana (I L R 32 Mad. 185), Govind Subrao v. F. S. Pacheco and others (4 B L R 948) and Gopi Tidadi v. Gokhel Panda (AIR 1954 Orissa 17).
11. As the questions involved in this appeal are of considerable public importance we think that we may attempt to explain the relevant basic principle so that it may be possible to assess the value of judicial precedents for purposes of applying the observations contained in them to the facts of this case. To begin with, we may mention that illegality of contracts at common law is different in its implications from illegality resulting from a statutory prohibition. Ordinarily, the problem which arise in respect of a statutory prohibition are firstly the ascertainment of those prohibitions, if any, which are Implied and secondly ascertainment of their nature to see whether they are prohibitions or conditions of permission. After a legal prohibition is discovered, its application to a given case is com--paratively simple because a prohibited contract. Is illegal and there is no need to see what acts as distinguished rom contracts, the statute prohibits, nor is it necessary to see the intention o the parties. As against this, the problem in respect of illegality at common law on the ground of public policy is the discovery of injuriousness to society. On the one hand a contract may be bad on the face of it and on the other hand it may be unobjectionable as it is formed, yet it may enjoin the doing of acts which may be injurious or illegal. Thus common law relating to prohibited contracts deals with the prohibition of acts and sta utory law relating to prohibited contract deals with the prohibition of contracts only. In the words of Chitty on Contracts in para. 847 "A significant distinction between cases of illegality at common law and these cases of illegality by statute is that in the former case one has to look and see what acts the statute prohibits ; it does not matter whether or not it prohibits a contract ; if a contract is deliberately made to do a prohibited act that contract will be unenforceable. In the latter case one has to consider not what acts the statute prohibits but what contracts it prohibits ; but one Is not concerned at all with the intent of the parties if the parties enter into a prohibited contract that contract is unenforceable."
12. The common law concept of injury to society has E elasticity as well as impreciseness. Cheshire and Fifoot navel brought out these aspects as follows:- "Pages 290-297.-Injury to society, however, is incapable of precise definition, and it is not surprising that the particular contracts found distasteful on this ground were described In somewhat vague and indeterminate language. To give a few examples, nobody would be allowed 'to stipulate for inquiry', no contract would be enforced that was 'contrary to the general policy of the law' or 'injurious to and against the public good', or contra bonos mores or that had arisen ex turip causa.
It seems justifiable to infer from such expressions as these that the Judges were determined to establish and sustain a concept of public policy. Contractual freedom must be fostered, but any contract that tended to prejudice the social or economic interest of the community must be forbidden.
Not unnaturally a principle stated In such sweeping terms as these has its disadvantages. It is imprecise, since judicial views will inevitably differ upon whether a particular contract Is immoral or subversive of the common good ; there is no necessary continuity in the general policy of the law, for what is anathema to one generation seems harmless to another; and the public good affects so many walks of life that the causes of action that can be said to arise ex turip causa must in the nature of things vary greatly in their degree of harm to the community."
13. Since the foundation of such illegality at common law is harmfulness to society it Is bound to involve considerations C which vary from country to country, society to society and time to time.
The following observations of Pollock and Mulla in their Commentary on section 23 of our Contract Act are noteworthy In this connection (p. 158) :- "English authorities on the subject of agreements being held unenforceable as running counter to positive legal prohibitions, to morality, or to public policy, are extremely voluninous and various. Many of them are inapplicable to the circumstances of India ; not that the elementary rules or law or morality differ in substance in England and in India, but because under the condition of Indian manners and society such facts as are dealt with by certain classes of English decisions do not occur. Reference to some of the English cases on matters of general interest will be found in the judgments of Indian Courts digested below. Some topics, on the other hand, are still of practical importance in India, though they are obsolete or all but obsolete in England."
14. The above warning appears to us to unmistakably lead to the conclusion that general observations made during the discussion of the facts of a case are not always the pith and substance of the relevant law. The crux of the matter being injuriousness to society it should be found as a fact to exist in each case. Sir Lawrence Jenkins, C. J. And Justice Ratty declined in Govind Subrao v. F. S. Facheco and others (1), to hold a transaction as illegal in spite of the fact that it conditionally prohibited subletting of a licence on the ground that it was not shown to be illegal at its inception. Nor was it proved as a fact that it would involve illegality if upheld. Their observations are as follows :- "Page 950.-On the question of public policy we may refer to what has been recently said by the House of Lords in Janson v. Driefontein Consolidated Mines Limited, and in particular to the view of Lord Davey "that public policy is not a safe or trustworthy ground for legal decision'. As a matter of fact nothing has been shown which would justify us in saying that there has been any infringement of public policy. The transaction said to be illegal has not been evidenced by any written document, but is the result of circumstances established by parole evidence tendered in this case.
It follows in accordance with the principles enunciated in Fraser v. Hill 1 Mac. 392 that it must be found as a. Fact, that the transaction in its inception amounted to or involved an illegality or was of such a nature that if permitted it would defeat the provisions of the law. The finding of fact is absent In this case."
Proof of illegality in the above context means establishment of those facts which would prove that the performance of the contract was illegal. The word `illegality' should be noted. It should also be noted in the quotation from Chitty in para--graph 847. The reason is that during the several centuries beginning from the Elizabethan Times up-to-date the concept of illegality of contracts in common law has become fixed and it is supposed to be no longer legitimate for the Courts to invent a new head to public policy. Cheshire and Fifoot have made two important observations in this regard which are relevant here. They say:- "Page 300.-Two observations must be added upon the doctrine of public policy in the current law.
(1) 4BLJ948 First, although the rules already established by precedent must be moulded to fit the new conditions of a changing world, it is no longer legitimate for the Courts to invent a new head of public policy. A judge is not free to speculate upon what, to his opinion, is for the good of the community. He must be content to apply, either directly or by way of analogy, the principles laid down in previous decisions. He must expound, not expand, this particular branch of law. The heads of public policy thus comprise, and are limited to, the nine types of contract already enumerated on page 299, supra.
Secondly, even though the contract is one which prima facie falls under one of the recognized heads of public policy, it will not be held illegal unless its harmful qualities are indisputable. The doctrine, as Lord Atkin remarked in a leading case, 'should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a new judicial minds . . . . . In popular language . . . . . The contract should be given the benefit of the doubt' ."
With the observations of Sir Lawrence Jenkins in mind, we may for a moment revert to the facts of the case in hand and may say that the mere fact that an agent is influential is not enough to prove illegality of performance unless some further facts to prove that his conduct was illegal are also established.
This is necessary because who does not know that highest retired Government officers are employed by big business houses all over the world and well connected youths are employed by such business houses in our country. The status, connection, intelligence, mannerism, background and experience of such t employees provide those business concerns with the means of having access to those quarters which are inaccessable to men of low standing and unpolished mannerism. Such employees can be misused for obtaining undue advantages but illegality is to be proved and not presumed. Ignorant people think that even in Courts famous lawyers who move in the highest circles of society can obtain undue advantages, but the Courts know that difference is found only in their superior knowledge, keen intelligence and fair treatments of different problems.
15. Mr. Shah Jamil Alam relied on Altas Industrial and Trading Corporation, Karachi and another v.
Dr. Jalil Asghar and referred to the passages which have been reproduced from English and Indian judgments in paragraphs 33 to 37 of that judgment. Those judgments are Blackford v. Prestor (1), Parkinson v. College of Ambulance, Monteriorte v. M'ondey Motor Components Company Limited, Chhatra Pal v. Fundilal (2) and Monindra Chandra Nandi and others v. Assiri Acharyya (3). We would examine in some detail the above-mentioned judgments only because they can be said to roughly represent the cross--section of the relevant thought. In the first case it was held that
(1) (1799) 8 T R 89(2) (1910) 8 1 C 1117
(3) AIR 1921 Cal. 185 money was paid to procure the command of a ship and that the agreement was also a fraud on East India Company. The considerations which governed that case were entirely different from those which are relevant to this case. So also were the considerations which governed the second case because in ft money was paid to procure the title of knighthood. For instance the Court observed that "In spite of Mr. Merriman's able argument I cannot feel any doubt that a contract to guarantee or undertake that an honour will be conferred by the Sovereign if a certain contribution is made to a public charity, or if some other service is rendered, is against public policy, and, therefore, an unlawful contract to make. Apart from being derogatory to the dignity of the Sovereign who bestows the honour, it would produce, or might produce, most mischievous consequances."
16. In the third case the defendant-company agreed to remunerate the plaintiff who was a member of the Imperial Air Fleet Committee for procuring capital for the defendant-company whose balance-sheet was "extremely unsatisfactory" and the mode of performance of this agreement by the plaintiff was that the plaintiff would- "include his (defendant's) firm in the list (of important firms) with a view to obtaining the capital either through me (the plaintiff) with a Government guarantee, or failing that. I (the plaintiff) might be able to obtain the financial assistance through the Air Board" (p. 248).
The Court held that t "The true consideration for giving of the note (by which the promise was made to remunerate the plaintiff) was that the plaintiff should use his alleged position, and the value of his good word, in favour of the defendant in getting government assistance in the form of money or contracts."
In these circumstances the Court observed that- "When it is apparant on the face of the contract that it is unlawful, it is the duty of the Judge himself to take objection."
Since illegality was found to exist on the face of the contract nothing more remained to be done.
17. From the fourth case the following sentence only has been used "The question of public policy is one of law and even where the facts have not been fully pleaded by the party, the Courts will deduce them from the evidence, and apply the doctrine of public policy."
We would respectfully agree with the above observations subject to the reservation that the question whether a contract or its performance is or is not against public policy is a mixed question P of law and fact. Moreover, the Courts may deduce pleas when they have to decide pure questions of law but they are not free to make deductions which may be mere surmises, logically disput--able, unwarranted or imaginary allegations of act against any party. May we add further that the law of pleadings is not abrogated by the common law concept of public policy. Moreover, it is difficult to see why resort should be at all had to the common law concept when we have section 23 of the Contract Act in substitution of it.
The section is as follows "23. The consideration or object of an agreement is lawful, unless it is forbidden by law ; or is of such a nature that, if permitted, it would defeat the provisions of any law ; or is fraudulent I or involves or implies injury to the person or property of another ; or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."
The expression "public policy" itself occurs in it and if we remember that we can, as well as ought, to use this section, then we become clear in mind that disregard of the law of pleadings cannot be justified in the name of public policy. If a contract is illegal on the face of it, then section 23 of the Contract Act is itself a bar against its enforcement. In such a G situation there is legally no contract and in consequence there is no question of a plea to that effect. The contract speaks for itself. But in those situations in which the position is not as clear as that, the law of pleadings is neither displaced by common law, nor by the Contract Act. The following observa--tions of Pollock and Mulla are instructive in this behalf-(p. 199): "The facts showing illegality must be pleaded, but when the illegality appears from the plaintiff's own evidence, or is otherwise duly brought to the notice of the Court, ft is the duty of Court to give effect to the fact thus brought to its notice, and to give judgment for the defendant, although the illegality is not raised by the pleadings.
See Code of Civil Procedure, O. VI, r. 8, and O. VIII, r. 2.
English law is similar. In 11 r. W. Salt Co. v. Electrolytic Alkali Co. (1914 A C 461) the House of Lords laid down that if an agreement is ex facie illegal, a Court, will not enforce it whether the illegality is pleaded or not. If on the other band an agreement is on the face of it legal, but unpleaded facts showing illegality have gone into evidence, the Court should not declare the agreement illegal unless it is satisfied that the whole of the relevant circumstances are before it."
See also Eldar v. Auerbach (1) which deals with an illegal object and in which relief was curtailed on considerations -of the pleadings.
18. The fifth judgment also supports the above point of view. It was argued in it that Rs. 1,500.00 which were claimed
(1) (1950) 1 K B 359 as preliminary expenses were money paid to influential persons. Payments of this nature being against public policy were held to be illegal yet the amount was not disallowed. Mookerjee, A. C. J , observed as follows:- "Page 187.-An agreement of this character holds out an inducement to public officers to act with partiality or from corrupt motives or to bias them in the discharge of their official duties ; such conduct, if tolerated, would sap the foundation on which official honesty rests and legalise temptations which would lead away from the path of rectitude many an official who, without such inducements, might perform his duty. These principles are indisputable but, in the case before us, the materials on the record are not sufficient to justify the application of these rules. Indeed, the evidence does not appear to have been expressly directed to this paint, for the obvious reason that neither the plaintiff nor the defendants would be over-anxious to disclose the alleged secrets. The award of Rs. 15,000 for preliminary expenses must consequently be confirmed."
19. In the case before us the contract is ex facie valid in law and there is nothing on the record to prove that it was performed in an illegal manner. We accordingly dismiss the appeal with costs.