Full Judgment Text
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PETITIONER:
STATE OF GUJARAT
Vs.
RESPONDENT:
MANILAL JOITARAM & CO.
DATE OF JUDGMENT:
08/11/1967
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
BHARGAVA, VISHISHTHA
VAIDYIALINGAM, C.A.
CITATION:
1968 AIR 653 1968 SCR (2) 117
ACT:
Forward Contracts (Regulations) Act, 1952, ss. 18 and
20--Non-transferable specific delivery contracts -No
actual delivery-Whether prohibited.
HEADNOTE:
The members of a Ghee and Tel Brokers Association, used
to enter into contracts for the sale and purchase of
groundnut oil. Week after week contracts were cancelled by
cross-transactions and there was no delivery. Instead of
payment of price losses resulting from the cross
transactions were deposited by the operators in loss with
the Association. On the due date also there was no delivery
but adjustment of all contracts of sales against all
contracts of purchase between the same parties and delivery
was of the outstanding balance. Even this delivery was
often avoided by entering into fresh contract at the rate
prevailing on the due date, as part of the. transactions in
the next period. The Sessions Judge convicted the
respondents--the Association’s President, Secretary and
Directors. holding that these were forward contracts
prohibited under the Forward Contracts (Regulation) Act and
the Association was not recognised. The High Court set
aside the convictions. In appeal, this Court:
HELD: Section 18(1) of the Act speaks of true non-
transferable ’specific delivery contracts but the proviso at
the same time makes it illegal for an unrecognised
association to so arrange matters that non-transferable
specific delivery contracts will-be worked out without
actual delivery. Such conduct is prohibited by the proviso
and directly punishable under s. 20(1)(b). An offence under
that clause of s. 20(1) and also under el. (c3 of that
section read with s. 15 was made out. There was no question
of considering the matter first under the main part of the
first sub-section and then to put the proviso out of the
way because the first sub-section did not apply. The
Legislature contemplates that the first sub-section of s.
18 might be complied with in the documents evidencing the
contract but in actuality the contract might be differently
performed and has. therefore, provided for the identical
situation which arose in this case. [182F-H, D]
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JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 250
of 1964.
Appeal from the judgment, and order dated March 14, 1963
of the Gujarat High Court in Criminal Revision Application
No. 124 of 1961.
R. Ganapathy Iyer and S.P. Nayar, for the appellant.
M.V. Goswami and C.C. Patel, for the respondent.
The Judgment of the Court was delivered by
Hidayatullah, J. In this appeal by certificate under
Art. 134( 1 ) (c) of the Constitution the State of Gujarat
appeals against
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the judgment, March 14, 1963, of the High Court of the
State acquitting the respondents of diverse offences under
the Forward Contracts (Regulation) Act, 1952. Originally 31
persons were charged before the Judicial Magistrate,
Ahmedabad, who acquitted 14 and convicted the rest. The
present respondents, who are 11 in number (accused 1 to 9,
11 and 12), were convicted under s. 20(1)(c) of the Act and
fined Rs. 51/- (15 days’ S.1. in default). They were
also convicted under s. 21(b) of the Act but no separate
sentence was imposed. Nine of them (accused 1 to 9) were
further convicted under s. 21(c) of the Act and fined Rs.
25/- (one week’s S.1. in default). The remaining accused
were convicted under s. 21 (b). All appealed to the Court
of Sessions Judge. The conviction of accused 1 to 9, 11 and
12 was maintained but conviction under s. 20(1)(b) was
substituted for that under s. 20(1)(c). The other accused’
were convicted of all the charges. The High Court was then
moved in revision. All the accused were acquitted of all
the charges. The State Government now appeals.
All respondents are members of the Ghee and Tel Brokers
Association Ltd., Ahmedabad. Nine of them are Directors and
two of these are President and Secretary of the Association.
The accused, who are not before us, were brokers and
servants of the Association or of the brokers. The
prosecution case is this: The Association has an office
where the members and brokers used to enter into contracts
for the sale and purchase of groundnut oil. These contracts
were largely speculative. A large number of contracts used
to be entered into but were not performed by actual delivery
and payment of price. They were adjusted on a due date
after the expiry of a fixed period. This period was
generally from the 5th of one calendar month to the 25th of
the following month and the latter was the due date. On
each Saturday during the period the Association exhibited
the prevailing rate and according to that rate cross
transactions entered earlier were adjusted and the persons
in loss deposited money representing their particular losses
with the Association. On the due date all
outstanding.transactions were finally adjusted by cancelling
sales against purchases and delivery used to be ordered in
respect of the balance which had to be completed by the end
of the month of the due date. During the stated period
extensive trading through sales and purchases took place
without any delivery. Each member could enter into as many
transactions of either kind as he liked provided that each
transaction was in multiple of 50 Bengali Maunds.
Between March 5 and April 25, 1957 the total transactions
put through totalled 4,33,600 Bengali Maunds but the actual
delivery on the due date was about 5,500 Bengali Maunds
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only, that is to say, just over 11/4 per cent. The share of
the several operators in these deliveries was insignificant
and the deals were really forward
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any such member, becomes illegal, and the contract itself
becomes void, except in the case of a person who has no
knowledge that the transaction is prohibited. We are not
concerned with ss. 16 and 17 and may omit them from
consideration. Then comes s. 18, sub-section (1) whereof
provides:
"18. Special provisions respecting
certain kinds of forward contracts.--
(1) Nothing contained in Chapter III or
Chapter IV shall apply to non-transferable
specific delivery contracts for the sale or
purchase of any goods:
Provided that no person shall
organise or assist in organising or be a
member of any association in any area to which
the provisions of section 15 have been made
applicable (other than a recognised
association) which provides facilities. for
the performance of any non-transferable
specific delivery contracts by any party
thereto without having to make or to receive
actual delivery to or from the other party to
the contract or to or from any other party
named in the contract."
This sub-section read with ss. 20 and 21 is at
the foundation of :the charge and as s. 19 is
irrelevant here, we may proceed to read them
at once. We are concerned only with cls. (b)
and (c) of sub-s. (1) of s. 20 and (b) and (c)
of s. 21 and will, therefore. omit the other
clauses:
"20. Penalty for contravention of
certain provisions of Chapter IV.--
(1) Any person who---
(a)
(b) organises, or assists in organising,
or is a member of, any association in
contravention of the provisions contained in
the proviso to sub-section (1) of section 18;
or
(c) enters into any forward contract or
any option in goods in contravention of any of
the provisions contained in sub-section (1) of
section 15, section 17 or section 19,
shall, on conviction, be punishable with
imprisonment for a term which may extend to
one ’year, or with fine, or with both.
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transactions in which there was no intention to take-or give
delivery. The prosecution, therefore, submitted that these
were forward contracts prohibited under the Act and as the
Association was not recognised the offences charged were
committed. The High Court having acquitted all the accused
the State’ contends now that the acquittal recorded by. the
High Court is wrong and proceeds on a misapprehension of the
provisions of the Act and of the facts on which the charges
rested.
To consider the submissions of the parties the relevant
provisions of ’the Act, which has been passed, among other
things, to regulate forward contracts, will have to be seen.
Before we do so we may first glance at some definitions
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leaving out those attributes of the terms defined in which
we are not interested. "Forward contract" under the Act
means a contract which is not a ready delivery contract but
a contract for future delivery (s. 2(c) ). A "ready
delivery contract" is one in which there is delivery and
payment of price either immediately or within a period which
is not to exceed 11 days even by consent of parties or
otherwise (s. 2(1) ). The expressions "transferable
specific delivery contract" and "non-transferable specific
delivery contract" are defined’ with reference to the latter
expression which means a specific delivery contract, the
rights or liabilities under which are not transferable (s. 2
(f)) and "specific delivery contract’ means a forward
delivery contract which provides for actual delivery of
specific qualities or types of goods either immediately or
during a period not exceeding 11 days at a price fixed
thereby or to be fixed in the manner thereby agreed and in
which the names of both the buyers ’and sellers are
mentioned (s. 2(m) ).
The effect of these definitions is clearly to
distinguish, firstly, forward contracts from ready delivery
contracts by limiting the time in which ready delivery
contracts must be completed by delivery and payment of
price; secondly, to distinguish between transferable and
non-transferable specific delivery contracts; and finally to
distinguish forward contracts in which there is either no
provision for actual delivery or the parties are not named,
from a specific delivery contract.
The Act then proceeds to lay down in Chapter III the
conditions of recognition of Associations. Since this
Association was admittedly not recognised it is unnecessary
to review the provisions of that Chapter. Chapter IV then
makes certain provisions regarding forward contracts and
option in goods. Chapter V then provides for penalties. The
relevant provisions of these two Chapters need to be
carefully considered. Section 15(1) declares illegal
forward contracts in notified goods and on the notification
so issuing every forward contract in notified goods
otherwise than between members of a recognised association
or through or with
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"21. Penalty for owning or keeping place
used for entering into forward contracts in
goods.---Any person who--
(b) without the permission of the Central
Government, organises, or assists in
organising, or becomes a member of, any
association, other than a recognised
association, for the purpose of assisting
in, entering into or making or performing,
whether wholly or in part, any forward
contracts in contravention of any of the
provisions of this Act, or
(c) manages, controls or assists in keeping
any place other than that of a
recognised association, which is used for the
purpose of entering into or making or
performing, whether wholly or in part, any
forward contracts in contravention of any of
the provisions of this Act or at which such
forward contracts are recorded or adjusted, or
rights or liabilities arising out of such
forward’ contracts are adjusted, regulated or
enforced in any manner whatsoever, or
shall, on contravention, be punishable with
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imprisonment which may extend to two years,
with fine, or with both."
The respondents were charged under ss. 20 (1) (b)., 20 (1)
(c) and 21(a), (b), (c) and (f). As the State does not
press its case under s. 21 (a) and (f) they have been left
out. Before we analyse the penalty sections it is necessary
to see whether the case fails within s. 18 (1) of the Act.
It is established in the case that the Association was
unregistered. It is also clear that the contracts, although
they appeared to be non-transferable specific delivery
contracts were not intended to be completed by delivery
immediately or within a period of 11 days from the date of
the. contract. In fact week after week contracts were
cancelled by cross-transactions and there was no delivery.
Instead of payment of price losses resulting from the cross-
transactions were deposited by the operators in loss with
the Association. Further, on the due date also, there was
no delivery but adjustment of all contracts of sales against
all contracts of purchase between the same parties and
delivery was of the outstanding balance. Even this delivery
was often avoided by entering into fresh contract at the
182
rate prevailing on the due date, as part of the transactions
in the next period. There is evidence also to establish
this. In other words, the transactions on paper did seem to
comply with the regulations but in point of fact they did
not and the Association arranged for settlement of the
entire transactions (barring an insignificant portion if
at all) without delivery.
Turning now to the provisions of sub-s. (1) of the 18th
section it is clear that the provisions of Chapters III and
IV would not have applied to the respondents if their
transactions were true non-transferable specific delivery
contracts. They would have been so if the nature of the
transaction, not on paper, but in actuality was such as
the Act contemplates. This is why the proviso to s. 18 has
been added to prohibit certain things. The proviso enacts
that no person shall organise or assist in organising or be
a member of an association (except a recognised association)
which provides facilities for the performance of any
specific delivery contract without having to make or to
receive actual delivery. The Legislature contemplates that
the first sub-section of s. 18 might be complied with in the
documents evidencing the contract but in actuality the
contract might be differently performed and has, therefore,
provided for ’the. identical situation which, arises in
this case.
Now the difference between the Magistrate and the
Sessions Judge arose on the application of the first sub-
section of s. 18 with its proviso. The Magistrate felt that
the transactions were not non-transferable specific
delivery contracts and the matter fell within the proviso.
Having found this, it is not a little surprising that he did
not apply s. 20(1)(b), which was clearly attracted. His
reasoning on this point is difficult to appreciate. He
seems to think that as the first sub-section of the
eighteenth section dealt with non-transferable specific
delivery contracts, it had no application here. Therefore,
the charge of being members of an association in
contravention of the proviso thereto did not survive and
hence no offence under s. 20(1)(b) was disclosed. In this
the Magistrate was clearly in error. Section 18( 1 ) speaks
of true non-transferable specific delivery contracts but the
proviso at the same time makes it illegal for an
unrecognised association to so arrange matters that non-
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transferable specific delivery contracts will be worked out
without actual delivery. The Magistrate should have seen
that the conduct of the members of this unrecognised
association was precisely this and was, therefore,
prohibited by the proviso and directly punishable under s.
20(1 )(b). An offence under that clause of s. 20(1) and
also under el. (c) of that section read with s. 15 was made
out. There was no question of considering the matter first
under the main part of the first subsection and ’then to put
the proviso out of the way because the first sub-section did
not apply. The Magistrate, however, con-
183
victed the members under s. 21 (b) for organising an
unrecognised association for the purpose of assisting in or
entering into or making or performing, whether wholly or in
part, any forward contracts in contravention of the
provisions of the Act and further under s. 21 (c) for
managing, controlling or assisting in keeping a place other
than that of a recognised association where forward
contracts in contravention of the Act or at which forward
contracts are recorded or adjusted or rights or liabilities
arising out of such forward contracts are adjusted,
regulated or enforced in any manner whatsoever.
When the respondents. appealed to the Sessions Judge,
the conviction under s. 21 (b) and (c) was confirmed and the
other conviction was altered from s. 20(1)(c) to s.
20(1)(b). The Sessions Judge rightly pointed out that the
so-called non-transferable specific delivery contracts were
so arranged that they could be resolved after the period of
eleven days and without actual delivery. The Sessions
Judge was of the opinion that the respondents had acted in
breach of the proviso to s. 18 (1 ) and were clearly guilty
of the offence. In a precise and clear judgment the
Additional Sessions Judge explained the pertinent sections
and rightly held the proviso to s. 18(1) and s. 20(1)(b)
applicable.
The High Court then in revision held that it was not
open to the Sessions Judge to alter the conviction from s.
20(1)(c) to s. 20( 1 )(b) as the acquittal under the latter
section by the Magistrate was not appealed against and in an
appeal from a conviction there could be no change of finding
to convert art acquittal into conviction. The High Court
also held that no offence under s. 21 (b) or (c) was made
out. In a fairly long judgment the High Court pointed out
that the decision of this Court in The State of Andhra
Pradesh v. Thadi Narayana(1) prohibited the alteration of
the finding. The High Court then went further to hold that
there could not be a conviction under s. 20( 1 ) (c) as the
Sessions Judge had acquitted the appellants and there was
again no appeal against that acquittal. The High Court also
set aside the conviction under s. 21 (b) and (c). The High
Court reached its conclusion on the ’basis of the finding of
the Sessions Judge that the contracts entered into were non-
transferable specific delivery contracts and the appellants
were, therefore, not guilty of the offence under s. 20(1)(c)
of the Act. The High Court then proceeded to reason that as
no part of the Act prohibited performance of non-
transferable specific delivery contracts otherwise than by
making or receiving actual delivery, the acts of the
appellants were not offences under the Act. The learned
Judge while dealing with s. 18 ( 1 ) proviso observed:
(1) [1962] 2 S.C.R. 933334.
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"The performance of a non-transferable
specific delivery contract by a mode other
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than giving and taking of actual delivery
would be contrary to law only if there is
some provision of law which prohibits it. But
unfortunately for the prosecution, the
Legislature has not chosen to enact any such
provision. The only nearest approximation I
could find was the proviso to sub-section(1)
of section 18 but that proviso does not
prescribe that a non-transferable specific
delivery contract shall be performed by making
and receiving actual delivery and that the
parties to such a contract shall not perform
it otherwise than ’by making and receiving
actual delivery. All that it enacts is that
no person shall organise or assist in
organising or be a member of any association
in any area to which the provisions of section
15 have been made applicable (other than a
recognised association) which provides
facilities for the performance of any non-
transferable specific delivery contract by
any party thereto without having to make or
receive actual delivery to or from the other
party to the contract or to or from any other
party named in the contract. What this proviso
seeks to achieve is to secure that no
Association other than a recognized
Association shall provide facilities for
performance of a non-transferable specific
delivery contract by the parties thereto
without having to make or receive actual
delivery. But it is a long step in the
argument to conclude from the proviso that
performance of a non-transferable specific
delivery contract otherwise than by making and
receiving actual delivery is prohibited. The
language of the proviso cannot bear any such
extended artificial construction........ "
The learned Judge was clearly in error and misunderstood
the connection between the first sub-section and its
proviso. Distinction is made in the proviso between
recognised and unrecognised associations. Persons can
organise and assist in organising or be member of an
association which is recognised even if the association
provides for performance of non-transferable specific
delivery contracts without actual delivery. The prohibition
is against persons arranging for avoidance of delivery
through an unrecognised association and read with the
penalty sections, it is clear that such. acts are rendered
illegal. If the acts are illegal then non-transferable
specific delivery contracts by members of unrecognised
associations become illegal also. They are forward
contracts and being entered into otherwise than between
members of a recognised association or through or with any
such member are rendered illegal by s. 15.
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Thus there is no doubt whatever in the case that
offences under s. 21(b) and (c) were committed. It is
enough to read these clauses to see that they fit the acts
of nine respondents (accused 1-9) and their position vis-a-
vis the unrecognised association of which they were
directors makes them liable to penalty under s. 21 (’b)
and (c) but the remaining two respondents (accused 11 and
12) being only members are liable to penalty under s. 21 (b)
only. As regards the other offences under s. 20(1)(b) and
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(c) we are clear that these offences were also committed.
But as the Sessions Judge acquitted them under cl. (c) and
there was no appeal to the High Court we say nothing about
it. As regards the offence under s. 20(1)(b) the Magistrate
did not clearly record a finding of acquittal. However, his
reasoning seems to be in favour of holding that the clause
did not cover the case as the contracts were not non-
transferable specific delivery contracts. His finding was
the reverse of the finding of the Sessions Judge. The
question thus remains whether the Sessions Judge could alter
the finding in an appeal from a conviction (and the High
Court too if it so chose) when it was a question of choosing
between two clauses of a penalty section depending on
whether the true nature of the contracts was as held by the
Magistrate. The ruling of this Court cited earlier was
invoked to suggest that such a course was not possible
for the Sessions Judge or the High Court. We do not pause to
consider whether the ruling prohibits such a course and if
it does whether it does not seek to go beyond the words and
intendment of s. 423(1)(b) of the Code of Criminal
Procedure. This is hardly a case in which to consider such
an important point. We, therefore, express no opinion upon
it. It is sufficient to express our dissent from the High
Court on the interpretation of the Act and hold the
respondents guilty of infractions where the ruling does not
stand in the way.
We accordingly set aside the acquittal of the respondent
under cls. (b) and (c) of s. 21 and restore their conviction
under those clauses as confirmed by the Sessions Judge. We
sentence all the respondents to a fine of Rs. 25 (or one
week’s simple imprisonment in default) under s. 21(b). No
separate sentence under s. 21 (c) is imposed on the
respondents who were original accused Nos. 1-9. The appeal
shall be allowed to the extent indicated. in this paragraph.
Y.P. Appeal allowed in part.
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