Full Judgment Text
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PETITIONER:
JUGAL KISHORE RAMESHWARDAS
Vs.
RESPONDENT:
MRS. GOOLBAI HORMUSJI
DATE OF JUDGMENT:
04/10/1955
BENCH:
AIYYAR, T.L. VENKATARAMA
BENCH:
AIYYAR, T.L. VENKATARAMA
BHAGWATI, NATWARLAL H.
SINHA, BHUVNESHWAR P.
CITATION:
1955 AIR 812 1955 SCR (2) 857
ACT:
Bombay Securities Contracts Control Act, 1925 (Bombay Act
VIII of 1925)-Ss. 3(4) and 6-Sale and purchase of securities
by appellant on behalf of respondent-Dispute between the
parties whether appellant was acting within his authority
when he purchased the shares-Relationship between the
parties that of principal and agent and not that of seller
and purchaser-Whether falls within purview of s. 6-Contract
notes sent by brokers to their constituent-Mere intimations
by brokers to constituent-That contract had been entered
into -Arbitration agreement-Essentials thereof-Rules framed
by Native Share and Stock Brokers’ Association-Complete code
by themselves Rule 167-Whether contract notes void
thereunder.
HEADNOTE:
The appellants share-broker carrying on business in the City
of Bombay and a member of the Native Share and Stock
Brokers’
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Association-was employed by the respondent for effecting
sales and purchases of shares on her behalf. The appellant
effected purchases of 25 shares of Tata Deferred and 350
shares of Swadeshi Mills to square the outstanding sales of
the same number of shares standing in her name and sent the
relative contract notes therefor to her. She repudiated the
contracts on the ground that the appellant had not been
authorised to close the transactions on the date mentioned
by him and asked him to square them at a later date. The
appellant maintained that the transactions had been closed
in accordance with her instructions. The appellant referred
the dispute for arbitration to the Native Share and Stock
Brokers’ Association in pursuance of an arbitration clause
in the contract notes. The respondent refused to submit to
arbitration of the association on the ground that the
contract notes were void and therefore no arbitration
proceedings could be taken thereunder. The arbitrators made
an award in favour of the appellant in the absence of the
respondent who declined to take part in the proceedings.
The respondent filed an application for setting aside the
award. The Bombay High Court held that the contracts in
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question were not ready delivery contracts as defined in s.
3(4) of the Bombay Securities Contracts Control Act VIII of
1925 and that they were accordingly void under s. 6 of the
Act and therefore the arbitration clause and the proceeding
taken thereunder culminating in the award were also void.
Held that apart from the question whether the contracts in
question were for ready delivery or not, they were outside
the purview of s. 6 of Bombay Act VIII of 1925 because they
were not contracts for sale and purchase of securities. The
dispute between the parties was as to whether the appellant
was acting within the scope of his authority when he
purchased the shares. If he was acting within his
authority, the respondent was liable to him. If those
purchases were unauthorised, the appellant was liable to the
respondent for damages. In either case the dispute was one
which arose out of the contract of employment of the
appellant by the respondent as a broker and not out of any
contract of sale or purchase of securities. The
relationship between the respondent and the appellant was
that of principal and agent, and not that of seller and
purchaser.
The contract notes sent by brokers to their constituents-
are not themselves contracts for sale or purchase of
securities within s. 6 of the Bombay Act VIII of 1925 but
only intimations by the broker to the constituent that such
contracts had been entered into on his behalf.
It is settled law that to constitute an arbitration
agreement in writing it is not necessary that it should be
signed by the parties, and that it is sufficient if the
terms are reduced to writing and the agreement of the
parties thereto is established.
The Rules framed by the Native Share and Stock Brokers’
Association, Bombay form a code complete in itself and any
question
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arising with reference to those Rules must be determined on
their construction and it would be a mistake to read into
them the statutory provisions enacted in the Bombay Act VIII
of 1925 and therefore the contract notes cannot be held to
be void under Rule 167.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 95 of 1953.
On appeal from the Judgment and decree dated the 29th day of
June 1951 of the Bombay High Court in Appeal No. 93 of 1949
arising out of the order dated the 16th September 1949 of
the Court of Bombay City Civil Court at Bombay in Award No.
45 of 1949.
M.C. Setalvad, Attorney-General of India (H. J. Umrigar, Sri
Narain Andley, Rameshwar Nath and Rajinder Narain, with
him), for the appellant.
H.R. Mehervaid and R. N. Sachthey, for the respondent.
1955. October 4. The Judgment of the Court was delivered by
VENKATARAMA AYYAR J.-The appellant is a share broker
carrying on business in the City of Bombay, and a member of
the Native Share and Stock Brokers’ Association, Bombay.
The respondent, Mrs. Goolbai Hormusji, employed him for
effecting sales and purchases of shares on her behalf, and
on 6-8-1947 there was due from her to the appellant on
account of these dealings a sum of Rs. 6,321-12-0. On that
date, the respondent had outstanding for the next clearance,
sales of 25 shares of Tata Deferred and 350 shares of
Swadeshi Mills. On 11-8-1947, the appellant effected
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purchases of 25 shares of Tata Deferred and 350 shares of
Swadeshi Mills to square the outstanding sales of the
respondent, and sent the relative contract notes therefor
Nos. 2438 and 2439 (Exhibit A) to her. She sent a reply
repudiating the contracts on the ground that the appellant
had not been authorised to close the transactions on 11-8-
1947, and instructed him to square them on 14-8-1947. The
appellant, however, declined to do so, maintaining that the
transactions had been closed on 11-8-1947 under the
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instructions of the respondent.
After some correspondence which it is needless to refer to,
the appellant applied on 21-8-1947 to the Native Share, and
Stock Brokers Association, Bombay for arbitration in
pursuance of a clause in the contract notes, which runs as
follows:
"In event of any dispute arising between you and me/us of
this transaction the matter shall be referred to arbitration
as provided by the Rules and Regulations of the Native Share
and Stock Brokers’ Association".
The Association gave notice of arbitration to the
respondent, and called upon her to nominate her arbitrator,
to which she replied that the contract notes were void, and
that in consequence, no arbitration proceedings could be
taken thereunder. The arbitrators, however, fixed a day for
the hearing of the dispute, and gave notice thereof to her,
but she declined to take any part in the proceedings. On
10-10-1947 they made an award in which, on the basis of the
purchases made by the appellant on 11-8-1947 which were
accepted by them, they gave credit to the respondent for Rs.
1,847, and directed her to pay him the balance of Rs. 4,474-
12-0.
The respondent then filed the application out of which the
present appeal arises, for setting aside the award on the
ground, inter alia, that the contracts in question were
forward contracts which were void under section 6 of the
Bombay Securities Contracts Control Act VIII of 1925, that
consequently the arbitration clause was also void and
inoperative, and that the proceedings before the arbitrators
were accordingly without jurisdiction and the award a
nullity. Section 6 of the Act is as follows:
"Every contract for the purchase or sale of securities,
other than a ready delivery contract, entered into after a
date to be notified in this behalf by the Provincial
Government shall be void, unless the same is made subject to
and in accordance with the rules duly sanctioned under
section 5 and every such contract shall be void unless the
same is made between members or through a member of a
recognised stock-
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exchange; and no claim shall be allowed in any Civil Court
for the recovery of any commission, brokerage, fee or reward
in respect of any such contract".
Section 3(1) defines ’securities’ as including shares, and
therefore, contracts for the sale or purchase of shares
would be void under, section 6, unless they were made in
accordance with the rules sanctioned by the Provincial
Government under section 5. The appellant sought to avoid
the application of section 6 on the ground that the
contracts in question were ’ready delivery contracts’, and
fell outside the operation of that section. Section 3(4) of
Act VIII of 1925 defines ’ready delivery contract’ as
meaning "a contract for the purchase or sale of securities
for performance of which no time is specified and which is
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to be performed immediately or within a reasonable time",
and there is an Explanation that "the question what is a
reasonable time is in each particular case a question of
fact". The contention of the appellant was that contracts
Nos. 2438 and 2439 were ready delivery contracts as defined
in section 3(4), as no time was specified therein for
performance.
The learned City Civil Judge, who heard the application
agreed with this contention, and holding that the contracts
were not void under section 6 of Act VIII of 1925, dismissed
the application. The respondent took the matter in appeal
to the High Court of Bombay, and that was beard by Chagla,
C.J. and Tendolkar, J. They were of the opinion that the
con’ tracts in question were not ready delivery contracts as
defined in section 3(4) of the Act, because though no time
for performance was specified therein, they had to be
performed within the period specified in the Rules and
Regulations of the Association, which were incorporated
therein by reference, and not "immediately or within a
reasonable time" as provided in section 3(4), that they were
accordingly void under section 6, and that consequently, the
arbitration clause and the proceedings taken thereunder
culminating in the award were also void. They accordingly
set aside the award as invalid and without jurisdiction.
Against this judgment, the appellant has preferred this
appeal
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on a certificate under article 133(1) (c).
It was argued by the learned Attorney-General in support of
the appeal that even apart from the question whether the
contracts in question were for ready delivery or not, they
would be outside the purview of section 6, because they were
not contracts for sale and purchase of securities. This
contention was not raised in the courts below, and learned
counsel for the respondent objects to its being entertained
for the first time in this Court, as that would involve
investigation of facts, which has not been made. But in
view of the terms of the contract notes and the admission of
the respondent in her petition, we are of opinion that the
point is open to the appellant, and having heard counsel on
both sides, we think that the appeal should succeed on that
point.
The dispute between the parties is as to whether the
appellant was acting within the scope of his authority when
he purchased 25 shares of Tata Deferred and 350 shares of
Swadeshi Mills on 11-8-1947. If he was acting within his
authority, then the respondent was entitled only to a credit
of Rs. 1,847 on the basis of the said purchases.’ But if
these purchases were unauthorised, the appellant was liable
to the respondent in damages. In either case, the dispute
was one which arose out of the contract of employment of the
Appellant by the respondent as broker and not out of any
contract of sale or purchase of securities. The question of
sale or purchase would arise between the respondent and the
seller or purchaser, as the case may be, with reference to
the contract brought about by the appellant. But the
relationship between the respondent and the appellant was
one of principal and agent and not that of seller and
purchaser. The contract of employment is no doubt
connected, and intimately, with sales and purchases of
securities; but it is not itself a contract of sale or
purchase. It is collateral to it, and does not become ipso
facto void, even if the contract of purchase and sale with
which it is connected is void. Vide the decision of this
Court in Kishan Lal and another v. Bhanwar Lal(1) The legis-
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(1) (1955] 1 S.C.R. 439.
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lature might, of course, enact that not merely the contract
of sale or purchase but even contracts collateral thereto
shall be void, in which case the contracts of employment
with reference to those contracts would also be void. But
that is not what Act VIII of 1925 has done. Section 6
expressly provides that no claim shall be maintained in a
civil court for the recovery of any commission, brokerage,
fee or reward in respect of any contract for the purchase or
sale of securities. That is to say, the bar is to the
broker claiming remuneration in any form for having brought
about the contract. But the contract of employment is not
itself declared void, and a claim for indemnity will not be
within the prohibition. The question whether contract notes
sent by brokers to their constituents are contracts for the
sale and purchase of securities within section 6 of Act VIII
of 1925, came up for consideration before the Bombay High
Court in Promatha Nath v. Batliwalla & Karani (1) and it was
held therein that they were not themselves contracts for
sale or purchase but only intimations by the broker to the
constituent that such contracts had been entered into on his
behalf. We agree with this decision.
It may be argued that if the contract note is only
intimation of a sale or purchase on behalf of the con-
stituent, then it is not a contract of employment, and that
in consequence, there is no agreement in writing for
arbitration as required by the Arbitration Act. But it is
settled law that to constitute an arbitration agreement in
writing it is not necessary that it should be signed by the
parties, and that it is sufficient if the terms are reduced
to writing and the agreement of the parties thereto is
established. Though the respondent alleged in her petition
that she had not accepted the contract notes, Exhibit A, she
raised no contention based thereon either before the City
Civil Judge or before the High Court, and even in this Court
the position taken up by her counsel was that Exhibit A
constituted the sole repository of the contracts, and as
they were void, there was no arbi-
(1) I.L.R. [1942] Bom. 655; A.I.R. 1942 Bom. 224.
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tration clause in force between the parties. We accordingly
hold that the contract notes contained an agreement in
writing to refer disputes arising out of the employment of
the appellant as broker to arbitration, and that they fell
outside the scope of section 6 of Act VIII of 1925, that the
arbitration proceedings are accordingly competent, and that
the award made therein is not open to objection on the
ground that Exhibit A is void.
It was next contended for the respondent that the contract
notes were void under Rule 167 of the Native Share and Stock
Brokers’ Association, and that on that ground also, the
arbitration proceedings and the award were void. Rule 167
so far as it is material is as follows:
"167. (a) Members shall render contract notes to non-Members
in respect of every bargain made for such non-Member’s
account, stating the price at which the bargain has been
made. Such contract notes shall contain a charge for
brokerage at rates not less than the scale prescribed in
Appendix G annexed to these Rules, or as modified by the
provisions of rules 168 and 170(b). Such contract notes
shall show brokerage separately and shall be in Form A
prescribed in Appendix annexed to these Rules.
............................................
(c) No contract note not in one of the printed Forms in
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Appendix H shall be deemed to be valid.
............................................
(g) A contract note referred to in this rule or any other
rule for the time being in force shall be deemed to mean and
include a contract and shall have the same significance as a
contract".
Form A in Appendix H referred to in Rule 167(a) contains two
columns, one showing the rate at which the securities are
purchased or sold and the other, the brokerage. The
contract notes sent to the respondent are not in this form.
They are in accordance with Form A in Appendix A, and show
the rates at which the securities are sold or purchased, the
brokerage not being separately shown. At the foot of the
document, there is the following note;
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"This is net contract. Brokerage is included in the price".
The contention of the respondent is that the contract notes
are not in accordance with Form A in Appendix H, as the
price and brokerage are not separately shown, and that
therefore they are void under Rule 167(c). Now, Rule 167
applies only to forward contracts, and the basis of the
contention of the respondent is that inasmuch as the
contract notes, Exhibit A, have been held by the learned
Judges of the High Court not to be ready delivery contracts
but forward contracts, they would be void under Rule 167(c),
even if they were not hit by section 6 of Act VIII of 1925.
The assumption underlying this argument is that what is not
a ready delivery contract under the definition in section
3(4) of Act VIII of 1925 must necessarily be a forward
contract for purposes of Rule 167. But that is not correct.
The definition of a ready delivery contract in section 3(4)
is only for the purpose of the Act, and will apply only when
the question is whether the contract is void under section 6
of that Act. But when the question is whether the contract
is void under Rule 167, what has to be seen is whether it is
a forward contract as defined or contemplated by the Rules.
The definition in section 3(4) of Act VIII of 1925 would be
wholly irrelevant for determining whether the contract is a
forward contract for purposes of Rule 167, the decision of
which question must depend entirely on the construction of
the Rules.
The relevant Rules are Nos. 359 to 363. Rule 359 provides
that "contracts other than ready delivery contracts shall
not be made or transacted within or without the ring". Rule
361 confers on the Board power to specify which securities
shall be settled by the system of Clearance Sheets and
which, by the process of Tickets. Rules 362 and 363
prescribe the modus operandi to be followed in effecting the
settlement. It was with reference to these rules which
under the contract notes were to be read as part of the con-
tract, that the learned Judges held that the contracts were
not ready delivery contracts as defined in sec-
866
tion 3(4) of Act VIII of 1925. But reading the above Rules
with Rule 359, there can be no doubt that the contract
notes, Exhibit A, would for the purpose of the Rules be
ready delivery contracts. Indeed, the form of the contract
notes, Exhibit A, is the one provided under the Rules for
ready delivery contracts, whereas Form A in Appendix H is,
as already stated, for forward contracts. Thus, contracts
which are regulated by Rules 359 to 363 cannot be forward
contracts contemplated by Rule 167, and they cannot be held
to be void under that Rule. The error in the argument of
the respondent is in mixing up two different provisions
enacted by two different authorities and reading the one
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into the other. The rules framed by the Association form a
code complete in itself, and any question arising with
reference to those rules must be determined on their
construction, and it would be a mistake to read into them
the statutory provisions enacted in Act VIII of 1925. In
this view, the contract notes, Exhibit A, cannot be held to
be void under rule 167. In the result, we must hold,
differing from the learned Judges of the court below, that
the arbitration proceedings are not incompetent and that the
award made therein is not void on the ground that the
contracts containing the agreement are void.
The respondent contested the validity of the award on
several other grounds. They were rejected by the City Civil
Judge and in the view taken by the learned Judges of the
High Court that the contract notes were void under section 6
of Act VIII of 1925, they did not deal with them. Now that
we have held that the contracts are not void, it is
necessary that the appeal should be heard on those points.
We accordingly set aside the order of the court below, and
direct that the appeal be reheard in the light of the
observations contained herein. As the appeal succeeds on a
point not taken in the courts below, the parties will bear
their own costs throughout. The costs of the further
hearing after remand will be dealt with by the High Court.
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