An arbitration agreement entered into in consideration of the withdrawal of a criminal complaint is invalid under S. 23 of the Indian Contract Act because its consideration is opposed to public policy.

Judgment:

GAJENDRAGADRAR, J.: The short question which arises in these two appeals is whether the Muchalika (Agreement of Reference) which was executed by the appellant and the four respondents in favour of Tanguda Narasimhamurty on the 30th of December, 1943, is invalid because its consideration was opposed to public policy under S. 23 of the Indian Contract Act. Both the trial Court and the High Court of Orissa have answered this question in the negative, and the appellant, who has come to this Court with a certificate granted by the High Court under Art. 133 of the Constitution, contends that the said conclusion is contrary to law.

2. It appears that the appellant took a lease of the Parlakimedi Samasthanam Rice & Oil Mill for three years from 1941 to 1944 under a registered lease-deed on the 9th December, 1940. The rent agreed to be paid was Rs. 7,000 per annum. For the working of the Mill, the appellant took six partners with him, and their shares in the partnership were duly determined. This partnership carried on the work of milling rice and extracting oil from ground- nuts.

3. The appellant also carried on another business in paddy and ground-nuts and in this business too he took as his partners four out of his six partners in the business of milling rice and extracting oil from ground-nuts. Amongst these partners was respondent No. l V. Gurumurty Raju. This latter business was carried on for about 14 months until the end of March 1942. Two of the partners then retired from the said business and took away their shares in the capital and the profits. The remaining three partners continued the business of the firm; the Appellant had As. 0-7-3 share, respondent No. 2 had 0-6-9 share and respondent No. 1 along with respondent No. 4 had 0-2-0 share. Thus, the partnership, in fact, consisted of five partners respondents 1 and 4 being together entitled to a share of As. 0-2-0. The business of the partnership thus carried on by these partners went on till the 15th September, 1942. Respondent No. 1 then demanded that the accounts should be made and the profits divided between the partners. As a result of this demand, the partnership was stopped, accounts were made and profits divided. The appellant and respondent No.2 took away their respective amounts, but respondent No. 1 claimed for himself alone the amount due to him and respondent No. 4, whereas respondent No. 4 demanded that the said amount should be divided half and half between him and respondent No. 1. That is how a dispute arose about the share of respondent No. 1

4. Respondent No 1 then proceeded to file a criminal complaint in the Court of the Joint Magistrate at Berhampur against six persons, including the appellant. In this complaint he alleged that the six accused persons have committed offences under Ss. 420, 465, 648 and 477 read with Ss. 107 and 120-B of the Indian Penal Code. Thc substance of the charge thus levelled by respondent No. 1 was that the accounts of partnership had been fraudulently altered with a view to show that respondent No. 4 was entitled to share equally the profits with respondent No. 1. In these proceedings, respondent No. 1 obtained an attachment of the account-books of the two business carried on by the appellant with his partners. This criminal complaint was numbered as Criminal Case No. 139 of 1943 and after process was issued on it and some preliminary steps had been taken, it stood adjourned for hearing to December 30, 1943.

5. On December 30, 1943 respondent No. 1 and the accused person enters into an agreement ( Exbt. 1) as a result of-which the dispute between the appellant and others and respondent No. 1 was agreed to be referred to the arbitration of Mr. Murty on the respondent No. 1 agreeing to withdraw his criminal complaint. Accordingly, when the criminal case was called out for hearing on that date, respondent No. I stated that he had no evidence to support his case and so, the complaint was dismissed; and the arbitration paper