Full Judgment Text
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PETITIONER:
MESSRS. KHIMJI POONJA AND COMPANY
Vs.
RESPONDENT:
SHRI BALDEV DAS C. PARIKH
DATE OF JUDGMENT:
14/03/1950
BENCH:
DAS, SUDHI RANJAN
BENCH:
DAS, SUDHI RANJAN
KANIA, HIRALAL J. (CJ)
FAZAL ALI, SAIYID
SASTRI, M. PATANJALI
MAHAJAN, MEHR CHAND
MUKHERJEA, B.K.
CITATION:
1950 AIR 7 1950 SCR 64
ACT:
Bombay Cotton Contracts Act (IV of 1932), s. 8 (1)--East
India Cotton Association Bye-laws, Nos. 51-A, 65-A, 80,
82--Cotton Contract--Contract note stating minimum amount
Of deposit as Rs. 25 and not in prescribed
form--Validity--Arbitration and award under arbitration
clause, whither void.
HEADNOTE:
Section 8 of the Bombay Cotton Contractors Act, 1939,,
provided that contracts entered into after the date the
commencement of the Act which are not in accordance with the
bye-laws of any recognised cotton association shall be void.
Bye-law 80 of the East India Cotton Association, Ltd., which
was a recognised cotton association within the meaning of
the Act provided that contracts between members acting as
commission agents on the one hand and their constituents on
the other shall be subject to the bye-laws and that a con-
tract note in the form given in the Appendix to the bye-laws
shall be rendered in respect of every contract. Bye-law
51-A originally required a deposit at a rate not less
than Rs. 9,5 per bale and the contract note accordingly
contained a clause to that effect. During the war this
bye-law was amended by reducing the minimum amount of depos-
it to Rs. 12-8 per bale and introducing a new bye-law (bye-
law 65-A) which, inter alia, gave certain options to the
last buyer, and by a Notification of the Government the form
of the contract note Was also amended by altering the mini-
mum deposit to Rs. 12,-8 and adding two new clauses to
comply with the bye-law 65-A. A contract note rendered after
these amendments to the byelaws and the form of contract
note, contained a rubber stamp impression in which the
minimum amount of deposit was stated as Rs. 9.5, and did not
contain the two new clauses that were introduced by the
Government Notification:
Held, that the contract note rendered was not in
accordance with the bye-laws and in the prescribed form as
the clause relating to the minimum amount of deposit was
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inconsistent with the provisions of bye-law 51-A as amended,
and the two new clauses had been omitted, even though. the
contract note recited that it was made in accordance with
the byelaws, and it was accordingly void and a valid award
could not be made under the arbitration clause contained in
the note.
[PATANJALI SASTRI .J preferred to rest his decision
solely on the ground of the omission to include in the
contract in question the two clauses newly added in the
prescribed form in order to give effect to bye-law 65-A.]
Judgment of the Bombay High Court affirmed,
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JUDGMENT:
APPEAL from the High Court of Judicature at Bombay.
Civil Appeal No. XXVI of 1949.
This was an appeal from a judgment and decree of the
Bombay High Court (Stone C.J. and Coyajee J.) dated 20th
March, 1947, in Appeal No. 42 of 1946, reversing a judgment
of Chagla J. dismissing an application. made by the respond-
ent under the Indian Arbitration Act, 1940, praying inter
alia that the arbitration agreement contained in certain
contract notes sent by the appellants to the respondent be
declared invalid and void and for setting aside an award
made by arbitrators appointed under the said contract note.
M.C. Setalvad, (Rameshwar Nath with him), for the appel-
lants.
C.K. Daphtary, (B. Sen and K.T. Desai with him), for the
respondent.
1950. March 14. The judgment of the Court was delivered
by
DAS J.--This appeal arises out of an application made by
the Respondent under the Indian Arbitration Act, 1940,
praying inter alia that the arbitration agreement contained
in certain contract notes including contract note No. 17996
sent by the Appellants to the Respondent be declared to be
invalid, void and unenforceable and be set aside and that a
purported award made by the arbitrators appointed in terms
of the said contract notes be set aside. That application
came to be made in the following circumstances:
The Appellants were and are members of the East India
Cotton Association Ltd. The Respondent, however, was not
and is not a member of that Association. In April, 1945, the
Respondent employed the Appellants as his agents to effect
forward contracts for the sale and/or purchase of cotton
according to the rules, regulations and bye-laws of that
Association. Between the 9th April, 1945, and the 10th
August, 1945, the ’Appellants as such agents put through
various contracts for sale and/or purchase of cotton for
July, 1945, and September, 1945, deliveries and sent to the
Respondent
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contract notes in respect of each of such contracts. All the
said contract notes were in printed forms, a specimen copy
whereof is set out at pages 12 to 15 of the Paper Book. On
the 10th August, 1945, the purchase of 900 bales of cotton
at Rs. 432 per candy for September 1945 delivery remained
outstanding. According to the Respondent, on the 11th
August, 1945, the Respondent instructed the Appellants to
close the said outstanding purchase by selling 900 bales for
September 1945 delivery at a rate not less than Rs. 426 per
candy, which is said to be the prevailing market rate on
that date. As the Respondent did not receive any contract
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note from the Appellants in respect of the closing transac-
tion of 900 bales, the Respondent on the 18th August, 1945,
put on record his aforesaid instructions and asked the
Appellants to send the contract note. The Appellants,
however, deny that any instruction was given by the Respond-
ent on the 11th August, 1945, for closing the outstanding
contract. They deny the receipt of the Respondent’s letter
of that date. According to the Appellants the 21st August,
1945, was a clearing date and on that clearing a sum of Rs.
18,900 became due and payable by the Respondent to the
Appellants and that instead of paying up his dues the Re-
spondent concocted the false story of having given instruc-
tions to the Appellants to close the outstanding purchase.
The Appellants by their letter of the 22nd August, 1945,
repudiated the allegations in the Respondent’s last men-
tioned letter and called upon the Respondent to pay up Rs.
18,900 and gave notice to him that if he failed to pay up
the amount by noon of the 23rd August, 1945, the Appellants
would be compelled to square up the outstanding contract at
their discretion on account and at the risk of the Respond-
ent. The Respondent on the 24th August, 1945, denied having
fabricated any false story and repudiated liability for Rs.
18,900 and returned the Appellants’ bill. On the 27th
August, 1945, the Appellants closed the outstanding contract
for purchase of 900 bales by selling the same at Rs. 356 per
candy for September 1945 delivery and along with their
letter dated the 27th August, 1945, sent contract ’note No.
17996. The
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Respondent by his letter dated the 28th August, 1945, reit-
erated the story of previous instruction for closing the
contract, denied having given any instruction to the Appel-
lants to close the contract on the 27th August, 1945, and
returned the contract note No. 17996. On the 28th August,
1945, the Appellants wrote to the Respondent claiming Rs.
34,313 and expressing the desire to refer the disputes to
arbitration in terms of the arbitration agreement contained
in the contract notes. Both parties appointed their respec-
tive arbitrators. The arbitrators entered upon the refer-
ence and eventually fixed the 24th October, 1945, for a
meeting of the arbitrators. The Respondent alleges that he
received the notice of meeting only on 22nd October, 1945,
and could not attend the meeting on the 24th October, 1945,
as he had to appear before the Income Tax Officer on the
same day. Accordingly, the Respondent sent his agent to
attend the arbitration meeting and to obtain an adjournment.
The arbitrators, however, rejected the application for
adjournment and made an ex parte award on the same day for
Rs. 34,313 and interest and costs. Being aggrieved by the
award the Respondent on the 10th November, 1945, filed an
appeal to the Board of the Association. The Respondent’s
allegation is that pending the said appeal he discovered
that the contract notes rendered by the Appellants from time
to time including the contract note No. 17996 were not in
accordance with the prescribed official form of contract
notes of the Association and he was advised that in the
premises the contracts were void under the provisions of the
Bombay Cotton Contracts Act (IV of 1932) and that, that
being so, there was no arbitration agreement between the
parties under which there could be any reference to arbitra-
tion on which any award could be made. The Respondent
thereupon amended his memorandum of appeal to the Board
pointing out the invalidity of the contracts and at the same
time made a substantive application to the High Court under
the Indian Arbitration Act for the reliefs already summa-
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rised above.
In order to appreciate the rival contentions of the
parties it is necessary to refer to the relevant
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provisions of the Bombay Cotton Contracts Act, 1932, and the
bye-laws of the said Association.
Section (8) (i) of the Bombay Cotton Contracts Act,
1932, runs as follows :-
"Save as hereinafter provided in this Act any contract
(whether either party thereto is a member of a recognised
cotton association or not) which is entered into after the
date on which this Act comes into operation and which is not
in accordance with the byelaws of any recognised cotton
association shall be void."
There is no dispute that the East India Cotton Associa-
tion is one of the recognised cotton associations for the
purposes of the said Act. Bye-laws 80 and 82 of Chat Asso-
ciation are in the terms following :--
"80. Delivery Contracts between members shall be made on
the Official form given in the Appendix. Hedge Contracts
between members may be verbal or in writing and when in
writing shall be in one or other of the forms given in the
Appendix. Whether verbal or written all contracts shall be
subject to the bye-laws, provided that in the case of Deliv-
ery Contracts Byelaws 149 to 163 inclusive shall not apply.
82. Contracts between members acting as commission
agents’ on the one hand and their constituents on the other
shall, be made subject to the bye-laws and a contract note
in the form given in the Appendix (pages 92, 93, 94 and 95)
shall be rendered in respect of every such contract. Bye-
laws 130 to 166 (inclusive) shall’ not apply to these Con-
tracts."
Bye-law 51-A originally required a deposit at a rate not
less than Rs. 25 per bale and accordingly the contract note
submitted by. the agent to the constituent used to contain
the following clause at the end of the clause relating to
payment of margin :-
"In addition to the above, the deposit (not carrying
interest) payable under bye-law 51-A;namely, at a rate not
less than Rs. 25 per bale shall, when demanded, be made by
you to me/us in Bombay."
During the war bye-law 51-A was amended by reducing the
minimum amount of deposit from Rs. 25 per
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bale to Rs. 12-8-0 per bale and accordingly the Government
of Bombay by a Notification made on the 19th September,
1945, in exercise of the powers conferred by the Bombay
Options in Cotton Prohibition Act, 1939 (Act XXV of 1939)
provided that the contract note should also be amended so
that the clause last quoted above should read as follows :--
"In addition to the above, the deposit (not carrying
interest) payable under bye-law 51-A, namely, at a rate not
less than Rs. 12-1/2 per bale shall, when demanded, be made
by you to me/us in. Bombay."
In order to enforce war-time controls another amendment
of the bye-laws was made whereby a new bye-law was added
as bye-law 65-A. In view of this last mentioned amendment
and in order to bring the contract note between the agent
and the constituent into line with this new bye-law the
Government of Bombay by the same Notification dated the 19th
September 1944 directed the inclusion of the two following
clauses in the contract note, namely:
"If this contract is a contract for sale, then if be-
tween us and other members of the East India Cotton Associa-
tion we become, under the bye-laws, the first seller of the
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cotton so sold and if the last buyer exercises the right
given by bye-law 65-A, you will then be bound by the provi-
sions of that bye-law as between you and us.
If this contract is a contract of purchase, and if
between us and other members of the East India Cotton Asso-
ciation Ltd., we become the last buyers unless we shall have
received express instructions from you in writing to. the
contrary, before the commencement of the delivery period if
the contract is entered into before the commencement of the
delivery period, or with the order if the contract is en-
tered into during the permitted days of trading in the
delivery period, we shall be at liberty at our option and
without any further reference to you to exercise the right
given to the last buyer under bye law 65-A, and if we so
exercise the right you will be bound by the provisions of
that bye-law as between you and us."
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After all these amendments the contract note to be
rendered by an agent to the constituent had to be in the
form, a specimen copy whereof is set out at pages 17 and 18
of the Paper Book. The contracts between the Appellants and
the Respondent were made after the aforesaid contract note
form came into vogue. The official Contract Note form to be
used after the aforesaid amendments opens with the following
clause :--
"I/we have this day sold/bought for you in Bombay sub-
ject to the following conditions and to the Bye-laws of the
East India Cotton Association Ltd., in force from time to
time and subject also to my/our usual charges and terms of
business as Commission Agents."
Then are inserted particulars of the description,
quantity, price etc., of the cotton which is the subjectmat-
ter of the contract. Then follows the clause for payment of
margin, the last sentence of which provides for payment of
deposit payable under bye law 51-A as amended, namely, at a
rate not less than Rs. 121/2 per bale. At the end of the
form are to be found the two new clauses required to be
incorporated in every Contract Note by the Government Noti-
fication already referred to.
The Contract Notes actually rendered by the Appellants
to the Respondent, however,. were in forms, a specimen copy
whereof is set out at pages 12--15 of the Paper Book. A
comparison of the two forms of the contract notes will
reveal the following differences :-
(1) In the contract note rendered by the Appellants to
the Respondent the last sentence providing for deposit at
the end of the margin clause is missing. There is, however,
a rubber stamp impression on the top of the back of the
contract to the following effect :--
"In addition to the above, the deposit (not carrying
interest) payable under bye-law 51-A, namely, at a rate not
less than Rs. 25 per bale shall, when demanded, be made by
you to me/us in Bombay."
Evidently, this rubber stamp provision is a reproduction
of the sentence that used to be found at the end of the
margin clause before bye-law 51-A was amended and the clause
itself was amended by the Government Notification of 1944.
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(2) The two new clauses required to be inserted in the con-
tract referred to above have also been omitted.
The contention of the respondent was that the contract
notes actually issued were not in accordance with the bye-
laws of the Association and were accordingly void under
Section 8 of the Bombay Cotton Contracts Act, 1932, and
that, that being so, the arbitration agreement incorporated
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in the contract note was also void and there could be no
reference to arbitration and there could be no award as
purported to have been made by the arbitrators on a refer-
ence under the void contracts.
The matter was dealt with by Mr. Justice Chagla who
overruled the contentions of the Respondent and dismissed
the application on 2nd July 1946. The learned Judge point-
ed out that whereas bye-law 80 required that delivery con-
tracts must be made on the official form and that the hedge
contracts, when made in writing, must be made in the form
given in the Appendix, clause 82 did not require that the
contracts between members acting as commission agents on the
one hand and their constituents on the other must be in
writing or in particular form. According to the learned
Judge bye-law 82 required two things, namely :-
(i) that the contracts referred to therein should be
made subject to the bye-laws, and
(ii) that a contract note in the prescribed form should
be rendered in respect of every such contract.
The learned Judge was of the opinion that section 8 of
the Bombay Cotton Contracts Act, 1932, only avoided the
contracts i.n case of contravention of the first require-
ment, namely, if the contracts were not made subject to the
bye-laws, but had no concern with the contravention of the
second requirement, namely, if the contract notes were not
in the prescribed form. The learned Judge appears to have
made a distinction between a contract and a contract note
which was a mere evidence of the contract. According to him,
even if the contract note was not in the prescribed form,
that fact did not affect the pre-existing contract which had
only to be made subject to the bye-laws but need not have
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72
been made in writing at all. Accordingly, the learned Judge
dismissed the application.
Being aggrieved by that decision, the Respondent went up
on appeal which was heard by Stone C.J. and Coyajee J. who
accepted the appeal, set aside the dismissal of the Respond-
ent’s petition and gave the declaration prayed for and set
aside the award. The Appellants have now come up on appeal
before us after having obtained the necessary certificate
from the Bombay High Court.
We find ourselves in agreement with the decision of the
appellate Court. Ordinarily, when a contract between the
parties is reduced to writing, the writing becomes the
repository of the contract and that writing only can be
looked at to ascertain what the contract between the parties
is, and if that writing is not in accordance with the bye-
laws, the contract itself must be void. We do not, however,
feel pressed to emphasize this aspect of the matter, for,
assuming that there was a pre-existing oral contract between
the parties dehors the written contract note, as held by
Chagla J. we have yet to see whether the so-called pre-
existing oral contract was in accordance with the bye-laws,
for if it were not, then it would be hit by section 8 of the
Bombay Cotton Contracts Act, 1932. There is no suggestion
that ’the terms of the so called pre-existing oral contract
were in any way different from the terms subsequently re-
corded in the contract notes actually issued.
In the first place we find that the last sentence in the
margin clause, in order to be in accordance with the bye-
laws, should have been as follows :-
"In addition to the above, the deposit (not carrying
interest) payable under bye-law 51-A, namely, at a rate not
less than Rs. 121/2 per bale shall, when demanded, be made
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by you to me/us in Bombay."
Instead of that sentence, we have the rubber stamp
impression reading as follows :-
"In addition to the above, the deposit (not carrying
interest) payable under bye-law 51-A, namely, at a
73
rate not less than Rs. 25 per bale shall, when demanded, be
made by you to us in Bombay."
The respondent contends that this term is not in accord-
ance with the bye-laws of the Association. The Appellants
on the other hand contend that there is no discrepancy,
because a provision for a rate not less than Rs. 25 per bale
does not contravene or is not inconsistent with the provi-
sion for a rate not less than Rs. 121/2 per bale. In other
words, any rate above the rate of Rs. 121/2 may be stipulat-
ed in accordance with the terms of business to which the
contract was subject, for it did not contravene the require-
ment that the rate should not be less than Rs. 121/2. It is
true that the opening clause of the contract note makes the
contract subject to the Appellants’ usual charges and terms
of business, but the contract is at the same time subject to
the bye-laws of the Association. In order to reconcile the
two, such terms of business as are not inconsistent with the
bye-laws can only be permitted to prevail. The rubber stamp
provision clearly imposes on the respondent as the constitu-
ent the liability to deposit a higher amount as the minimum
amount to be deposited and is to that extent not in accord-
ance with bye-law 51-A. Apart from this consideration there
is another serious objection to the rubber stamp provision.
The language of that rubber stamp provision clearly indi-
cates that it purports to summarise and set out what is
payable under bye-law 51-A. In fact, as already
stated,above, bye-law 51-A had been amended and what is
payable under the amended’ bye-law is not at a rate not less
than Rs. 25 but at a rate not less than Rs. 121/2. There-
fore, the rubber stamp provision wrongly summarises and sets
out the provisions of bye-law 51-A and consequently is not
in accordance with that bye-law.
The contention of the Respondent has been and is that by
reason of the omission of the two clauses at the end of the
contract note actually issued by the Appellants it was not
in accordance with the bye-laws. The learned Attorney-Gener-
al appearing for the Appellants contends that the contract
was expressly made subject
74
to the bye-laws and, therefore, the provisions of the new
bye-law 65-A were by reference incorporated in the contract.
This contention, we are satisfied, is unsound. Bye-law
65-A in terms regulates the relationship between members and
incorporation thereof in a contract between a member agent
and an outsider constituent will make no sense and on a
plain reading will be meaningless. Further, under bye-law
65-A the last buyer has certain options. The outstanding
contract being one for purchase of 900 bales, the Appel-
lants, if they became the last buyers, could, under that
bye-law, exercise any of those options at their own dis-
cretion. In the second of the two clauses which have been
omitted from the contract note this option has been made
subject to express instructions of the constituent to the
contrary, for it provides that the Appellants as agents
would be free to exercise their option--
"unless I/We shall have received express instructions
from you in writing to the contrary, before the commence-
ment of the delivery period if the contract is entered
into before the commencement of the delivery period or
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with the order if the contract is entered into during the
permitted days of trading in the delivery period."
By reason of the omission of the two clauses, this right
of the Respondent as constituent is not made a term of the
contract between the parties. It follows, therefore, that
the so-called pre-existing oral contract is not in accord-
ance with the bye-laws on this ground also.
For reasons stated above, this appeal fails and must be
dismissed with costs.
PATANJALI SASTRIJ.---I agree that this appeal should be
dismissed with costs, but I would prefer to rest my deci-
sion solely on the ground of the omission to include in
the contract in question the two clauses newly added in
the prescribed form in order to give effect to bye-law
65-A. Appeal dismissed.
Agent for the appellants, Rajinder Narain.
Agent for the respondent: M.S.K. Sastri.
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