Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
PETITIONER:
MODI & CO.
Vs.
RESPONDENT:
UNION OF INDIA
DATE OF JUDGMENT:
07/12/1967
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
BHARGAVA, VISHISHTHA
CITATION:
1969 AIR 9 1968 SCR (2) 565
CITATOR INFO :
RF 1979 SC 553 (12)
ACT:
Forward Contract (Regulation) Act 74 of 1952, ss. 2(f) and
15(1)--Contract for sale of Twills providing for delivery on
specified date-If a ’non-transferable specific delivery
contact within s. 2(f)-Principles for determining.
HEADNOTE:
The appellant entered into a contract in September 1960 with
the respondent through the Director-General, Supplies and
Disposals, whereby he agreed to sell 500 bales Twills on
terms and conditions contained in an exchange of letters.
The date of delivery was fixed as November 30, 1960 and
after the contract was entered into, the appellant deposited
with the Reserve Bank of India an amount by way of security
deposit in accordance with the terms of the contract. On
November 30, the appellant informed the respondent that the
contract was void and illegal being in violation of the
provisions of the Forward Contract (Regulation) Act 74 of
1952 and that the security deposit should therefore be
refunded. The respondent however took I the position that
the contract was legal and binding and as the appellant had
failed to deliver the goods as stipulated, it would purchase
the goods elsewhere at the risk of the appellant. The
respondent thereafter incurred an extra expenditure of about
Rs. 76,000 and after giving credit to the appellant for the
amount of security deposit claimed the balance amount of
’about Rs. 56,000 from the appellant. Upon the latter’s
failure to pay, the respondent took recourse to the
arbitration clause of the contract and appointed an
arbitrator to determine the dispute.
Before the arbitrator could give his award, the appellant
filed an application before the High Court under s. 33 of
the Arbitration Act, praying for a declaration that the
arbitration clause was illegal and void and for an
injunction restraining the respondent from prosecuting the
arbitration proceedings. The High Court dismissed the
application holding that the contract was a "non-
transferable specific delivery contract" and was not hit by
the provisions of the Act.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
On appeal to this Court,
HELD : (dismissing the appeal) The question as to whether
the contract was a transferable or non-transferable specific
delivery contact is, a question which ultimately depends on
a reasonable construction of the contract. On a proper
construction of the terms of the contract and having regard
to the surrounding circumstances, there was an implied
agreement between the parties that the rights and
liabilities under the contract were not to be transferred
and the bill of lading relating to the contract was also not
to be transferred. It follows therefore, that the contract
in question was a non-transferable specific delivery
contract within the meaning of s’ 2(f) of the Act and was
not hit by the notification issued on March 29, 1958 issued
by the Central Government under s. 15
(1) of the Act relating to jute/goods. [569 E; 571 C-E]
Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd.
[1963] 3 S.C.R. 183, referred to.
566
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 395 of
1965.
Appeal by special leave from the judgment and order dated
September 18, 1963 of the Calcutta High Court in Matter No.
97 of 1963.
A.K. Sen and D. N. Mukherjee, for the appellant.
B.R. L. Iyengar and R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the Calcutta High Court dated September 18,
1963 dismissing an application under S. 33 of the Arbitra-
tion Act.
By its letter dated September 14, 1960, the appellant made
an offer for sale to the respondent of 500 Bales (1,50,000
bags) ’B’ Twills on the terms and conditions mentioned in
the said letter. The offer was accepted by the Director-
General, Supplies & Disposals on behalf of the respondent by
his letter No. CAL/ DL-1/5750-L/II/Modi/158 dated September
16, 1960. The appellant deposited with the Reserve Bank of
India the sum of Rs. 20,182-50 P. towards security deposit
on September 22, 1960 as required by the acceptance letter.
The date of delivery fixed under the contract was November
30, 1960 and the respondent sent the appellant despatch
instructions dated November 21, 1960, through the Director
of Supplies & Disposals. On November 30, 1960 the
appellant, however, intimated to the respondent that the
contract was void and illegal and requested that the
security deposit should be refunded. The case of the
appellant was that the contract was in violation of the
provisions of the Forward Contract _(Regulation) Act, 1952
(Act 74 of 1952), hereinafter called the ’Act’. By his
letter dated December 1, 1960 the Director of Supplies wrote
on behalf of the respondent that the contract was legal and
binding and as the appellant had failed to deliver the goods
as provided in the agreement the respondent would purchase
the goods at the risk of the appellant. The respondent
incurred extra expenditure amounting to about Rs. 76,410 and
after giving credit to the appellant for the amount of
Security Deposit, a sum of Rs. 56,000 still remained due to
be paid by the appellant to the respondent. As the
appellant failed to pay, the respondent took recourse to the
arbitration cl. 21 of the contract and appointed an Arbitra-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
tor to determine the dispute between the parties regarding
the agreement. Before the Arbitrator could give his award,
the appellant filed an application before the High Court
under S. 33 of the Arbitration Act praying for a declaration
that the arbitration clause was illegal and void and for an
injunction restraining
567
the respondent from prosecuting the arbitration proceedings.
By its judgment dated November 19, 1963, the High Court held
that the contract was a "non-transferable specific delivery
contract and was not hit by the provisions of the Act and
accordingly dismissed the application of the appellant.
The question presented for determination in this appeal is
whether the contract in question is a transferable or non-
transferable specific delivery contract within the meaning
of the Act.
Section 2(i) of the Act defines a "ready delivery contract"
as meaning "a contract which provides for the delivery of
goods and the payment of a price therefor, either
immediately or within such period not exceeding eleven days
after the date of the contract......... ". A "forward
contract" is defined under s. 2(c) as meaning "a contract
for the delivery of goods at a future date and which is not
a ready delivery contract". Section 2(m) defines a
"specific delivery contract" as meaning "a forward contract"
which provides for the actual delivery of specific qualities
or types of goods during a specified future period at a
price fixed thereby or to be fixed in the manner thereby
agreed and in which the names of both the buyer and the
seller are mentioned". Section 2(f) defines a "non-
transferable specific delivery contract" as meaning "a
specific delivery contract, the rights or liabilities under
which or under any delivery order, railway receipt, bill of
lading, warehouse receipt or any other document of title
relating thereto are not transferable. Finally, s. 2(n)
defines a "transferable specific delivery contract" as
meaning "a specific delivery contract which is not a non-
transferable specific delivery contract".
Chapter IV of the Act contains provisions conferring autho-
rity on Central Government to prohibit certain classes of
forward contracts. Section 15(1) of the Act states as
follows :
"15. (1) The Central Government may by
notification in the Official Gazette. declare
this section to apply to such goods or class
of goods and in such areas as may be
specified
in the notification, and thereupon, subject to
the provisions contained in section 18, every
for-ward contract for the sale or purchase of
any goods specified in the notification which
is entered into in the area specified therein
otherwise than between members of a recognised
association or through or with any such member
shall be illegal."
Section 17 provides :
"17. (1) The Central Government may, by noti-
fication in the Official Gazette, declare
that no person shall, save with the
permission’ of the Central Govern-
568
ment, enter into any forward contract for the
sale or purchase of any goods or class of
goods specified in the notification and to
which the provisions of section 15 have not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
been made applicable, except to the extent and
in the manner, if any, as may be specified in
the notification.
(2)All forward contracts in contravention
of the provisions of sub-section (1) entered
into after the date of publication of the
notification thereunder shall be illegal.
(3)Where a notification has been issued
under sub-section (1), the provisions of
section 16 shall, in the absence of anything
to the contrary in the notification, apply to
all forward contracts for the sale or purchase
of any goods specified in the notification
entered into on or before the date of the
notification and remaining to be performed
after the said date as they apply to all
forward contracts for the sale or purchase of
any goods specified in the notification under
section 15."
Section 18(1) states that these provisions will not apply to
nontransferable specific delivery contracts for the sale or
purchase of any goods.
According to the scheme of the Act therefore contracts of
sale of goods are divided into two categories, ’ready
delivery contracts’ and "forward contracts". Forward
Contracts are classified into those which are "specified
delivery contracts" and those which are not. Then again,
’specific delivery contracts’ are divided into ’transferable
specific delivery contracts’ and ’nontransferable specific
delivery contracts’. Section 18(1) exempts from the
operation of the Act non-transferable specific delivery
contracts. The net result of these statutory provisions is
that all forward contracts except those which are non-
transferable specific delivery contracts, can be declared
illegal by a notification issued under the Act.
Such a notification was issued,in this case by the Central
Government on March 29, 1958 which is to the following
effect
"In exercise of the powers conferred by sub-
section (1) of section 15 of the Forward
Contracts (Regulation) Act, 1952 (74 of 1952)
the Central Government hereby declares that
the said Section shall apply to Jute/goods
(Hessian cloth made of jute or bags made of
such Hessian cloth and sacking cloth made of
jute or bags made of such Sacking cloth) in
the City of Calcutta.
569
Explanation :-"The expression ’City of
Calcutta’ means
(1) Calcutta as defined in clause (11) of
Section 5 of the Calcutta Municipal Act, 1951,
(West Bengal Act No. 33 of 1951), together
with part of the Hastings North or South edge
of Clyde Row and Strand Road to the river bank
and the areas which were previously under the
new defunct Tollygunge Municipality;
(2) The Port of Calcutta; and
(3) The Districts of 24 Parganas, Nadia,
Howrah and Hooghly".
It was argued on behalf of the appellant that the contract
in question was a forward contract within the meaning of the
Act and was prohibited by the Government notification and
therefore no right or liability accrued to the parties on
the basis of the contract. The contention of the appellant
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
was that the contract was not a non-transferable specific
delivery contract as defined in s. 2 (f ) of the Act and as
such it was illegal and void and the arbitration clause
contained therein was of no effect and could not be availed
of by either of the parties. We are unable to accept the
argument put forward on behalf of the appellant as valid.
The question as to whether the contract was a transferable
or non-transferable specific delivery contract is a question
which ultimately depends on a reasonable construction of the
contract. On behalf of the appellant it was pointed out
that there was no specific clause in the contract which
prohibited the transfer of the rights and liabilities or
which prohibited transfer of the bill of lading. But the
absence of such a specific clause is nor conclusive as to
the intention of the parties. It is true that when a
contract is reduced to writing we must look only to that
writing. for ascertaining the terms of the agreement between
the parties but it does not follow from this that it is only
what is set out expressly and in so many words in the
document that can constitute a term of the contract between
the parties. If upon a reading of the document as a whole,
it can fairly be deduced from ,,he words actually used
therein that the parties had agreed on a particular term,
there is nothing in law which prevents them from setting up
that term. The terms of the contract can be expressed or
there can be a necessary implication of a term from what has
been expressed in the contract. The question therefore
resolves in the ultimate analysis upon the construction of
the terms of the contract between the parties. In this
connection it is well-established that in construing such a
contract it is legitimate to take into account the
surrounding circumstances for-
570
ascertaining the intention of the parties. As was pointed
out by this Court in Khardah Company Ltd. v. Raymon & Co.
(India) Private Ltd.,(1), the absence of a specific clause
prohibiting transfer is not conclusive one way or the other
on the question whether there was an agreement between the
parties that the, contract was to be non-transferable. What
has to be seen is whether it could be held on a reasonable
interpretation of the contract, -aided by such
considerations as can legitimately be taken into account
that the agreement between the parties was that it was :not
to be transferred. In the present case, it should be
noticed that the contract cannot be sublet or assigned by
the seller under condition 10 read with para 3(b) of the
"Conditions of Contract contained in Form D.G.S. & D. 68
governing contracts placed by the Central Purchase
Organisation ’of the Government of India, 1959 edition".
Para 3(b) states :
"(b) Subletting of Contract.-The Contractor
shall not subject, transfer or assign the
contract or any part thereof without the
written permission of the Purchaser. In the
event of the Contractor contravening this con-
dition the Purchaser shall be entitled to
place the contract elsewhere on the
Contractor’s account and at his risk and the
Contractor shall be liable for any loss or
damage which the Purchaser may sustain in
consequence or arising out of such replacing
of the contract."
So far as the buyer is concerned, the contract itself shows
that the jute bags were intended for "packing foodgrains
which were arriving in bulk" at an Indian port. The last
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
paragraph of the letter of acceptance dated September 16,
1960 states that "the gunnies are very urgently required at
the destination for packing imported foodgrains which are
arriving in bulk" and "it was therefore of utmost importance
that shipment of the total quantity ordered shall be made in
the vessels nominated by the purchaser." There is also a
specific provision in the contract that the "stores shall
be, inspected prior to shipment by the A.T.I.G.S., East
India, Hastings, Calcutta, or his representative." There is
also a further stipulation that after the goods are
inspected arrangements should be made to ship the stores in
accordance with the instructions contained in the contract
and that goods which are not accepted in inspection should
not be shipped. The name of the consignee is given in the
contract as Asst. Director (Storage), Ministry of Food &
Agriculture, Transit Shed No. 4, Visakhapatnam Port,
Visakhapatnam and payment is to be made according to the
procedure specified in the contract and the cost was
debitable to the Pay & Accounts Officer, Ministry of Food &
Agriculture, Bombay or New Delhi as the case may be under
(1) [1963] 3 S.C.R. 183.
571
Head of Account "87-Capital Outlay on the Schemes of Govt.
Trading-Schemes for purchases of Foodgrains A.I. (3)(1)
expenditure in India Section IV Special Purchases both for
Civil & Defence requirements other Purchases-Purchase of
gunnies for imported foodgrains". In view of all these
circumstances we are of opinion that it was not contemplated
by the parties that the rights under the contract should be
transferred either by the buyers or by the sellers. It was
pointed out for the appellant that normally the Bill of
Lading par-takes of the nature of a negotiable instrument
and by endorsing it the holder of the bill of Lading can
transfer the property in the goods to which the Bill of
Lading relates and by parting with it-the holder parts not
only with the property in the goods but also with their
possession. The proposition contended for by Counsel for
the appellant is no doubt correct, but the question in this
case is not the abstract question as to what the purchaser
could or might have done but what was in fact contemplated
by the parties who were entering into the contract. For the
reasons already given, we hold that on a proper construction
of the terms of the contract and having regard to the
surrounding circumstances there was an implied agreement
between the parties that the rights and liabilities under
the contract were not to be transferred and the Bill of
Lading relating to the contract was also not to be
transferred. It follows therefore that the contract in
question was a non-transferable specific delivery contract
within the meaning of s. 2(f) of the Act and the contract
was not hit by the notification dated March 29, 1958 issued
by the Central Government under s. 15(1) of the Act.
For the reasons expressed we hold that the decision of the
Calcutta High Court dated September 18, 1963 is correct and
this appeal must be dismissed with costs.
R.K.P.S. Appeal dismissed.
572