Megna Mills Co. Ltd. v. Ashoka Marketing Co.

· by-Grover, J, These two appeals by special leave are from a jud6ment of the Calcutta High Court holding that the disputes .between. the parties could not be referred to arbitration.

It is necessary to state the facts only in Civil Appeal No. 2012/66. The appellant was and still is a member of the East India Jute & Hessian Exchange Limited, hereinafter called the "Exchange", which is the only association recognised i:nder the provisions of the Forward Contract~ (Regulation) Act 1952, here-inafter called .the "Act". The respondent is not a member of the said association. On December 21, 1962 a transactions was en-tered into between the panies by means of a letter written by the respondent to the appellant. This letter was in the following ;terms :

"We have today bought from you the following goods : Description : Jute Carpet Backing cloth bound of card·

board cores 152" wide.

Weig1J.t : 9 oz on 36".

Wrap Ends: Per Inch 15.

Weft Ends: Per Lnch 13.

Oil contents ; Upto 2 % Quantity-:· 5,000 Rolls, each roll having continuous length of 300 yards approximately.

Rate : Rs. 4,000 per ton.

Delivery : 500 Rolls monthly; March' 1963 to December 1963.

All other terms and conditions of the East India and Hessian E~ change standard contract will be applicable to this contract. Plea'Se sign your acceptance on the duplicate copy of this let-ter."'

The appellant from time to time delivered certain Rolls of Jute Carpet Backing cloth under the aforesaid contract, the price of which was paid by the respondent. As regards the balance number of Rolls deliverable under the contract the appellant pur-chased back and the respondent resold the balance qu~tities of goods by a contract dated December 9, 1963 which transaction was emOOdied in a Jetter of the appellant to the respondent dated December 9, 1963 and which was countel'lligned by the respcn-Jent. · Acqordi11_$ to the allpellant it was agreed or under~tood between the parties that deliveries under the two contracts of De- 'cmber 21, 1962 and December 9, 1963 would be set off against each other. As rega1·ds 1,000 Rolls deliverable for the xnonths of August and September 1963 11.Ilder the contract dated Decem-ber 21, 1962 the appellant is stated to have received from the respondent difference in the price of goods but in respect of the balance of 1500 Rolls the respondent did not pay the dift'erence. TI1e appellant demanded the difference payable by the respondent under the said contracts. .Disputes and differences having arisen between the parties in the matt!lr the appellant referred its claim to the arbitration of Bengal Chamber of Commerce and Industry. This was purported to have been done on the footing that the con-tracts provided that all terms and conditions thereof would be governed by the bye-laws of the Exchange for trading in transfer-able specific delivery contracts. The standard contract fotms and the rules and bye-laws of the Exchange, inter alia, . provided for arbitra,ion of the Bengal Chamber o( Commerce and Industry. When the Chamber proceeded with the arbitration putsuant to the reference the respondent filed a petition before the Calcutta High Court on February 19, 1966 under s. 33 of the Indian Arbitration Act 1940. It was prayed that the extent and validity of the arbi-tration agreement contained .in the contracts be determined ::nd l-L694Sup.Cl/7i it be declared that there was no valid arbitration agreement bet-ween the parties in respect of the contracts dated December 21, 1962 and December 9, 1963. The main point raised in the res-pondent's petition was that the contracts were not in accordance with the provisions of the Act or the bye-laws of the Exchange and were not in the forms prescribed and were, therefore, void and illegal. This petition was heard by A. N. S~n, J., who allow-ed the petition and held that the contracts· were illegal and there was no valid arbitration agreement between the parties.

The Act provides for regulations of certain matters relating to forward contracts, the prohibitio°' of options in goods and for m~tters connected therewith including the setting up of a Forward Markets Commission, recognition of assodation for the purpose of the Act, for issuing notifications for regulating or prohibiting forward contracts and option in goods etc. Section 11 empowers a recognised association to make bye-laws for the regulation a,id control of forward contracts subject to previou~ approval of the Central Government. Sub-section (3) of s; 11 is as f_olows :--

( 3) "The bye-laws under this section may-

( a) specify the bye-laws the contravention of any of which shall make a contract entered into otherwise than in accordance with the bye-laws void under sub-section (2) of section 15;

( aa) specify the bye-laws the contravention of any of wbich shall make a forward contract entered into otherwise than in accordance with the bye-laws illegal under sub-section (3A) of section 15.

(b) .................. "

Under s; 15(1) the Central Government may by notification dec-lare the circumstances in which the forward contracts in notified goods would be void and illegal. Su])-section (2) of s. 15 pro-vides that any forward contract in goods entered into in pursuanc~ of sub-s. ( 1) which is in contrav.ention of any of the bye-laws specified in this behalf under cl. {a) of sub-s. (3) of s. 11 shall be void. Sub-section ( 3A) makes any forward contract in goods entered into in pursuance of sub-s. ( 1) which at the date of the contract is in contravention of any of the bye-laws specified in this behalf under cl. (aa) of sub-s. (3) of s. 11 illegal.

By means of a notification dated March 29, 1958, the Central Government declared as follows :-

"In exercise of the powers conferred by sub-s. ( 1) of section 15 of the Forward Contracts (Regulation) Act,

1952 (74 .of 1952) the Central Government hereby dec-lares that the said section shall apply to jute goods (hes-sian cloth made of jute or bags of such hesisan cloth and sacking cloth) in the City of Calcutta."

Pursuant to the provisions of s. 11 of the Act and the Exchange made bye-laws for trading in trainsferable specific delivery contracts in jute goods. These bye-laws and the fonns of the contract prescribed are contained in Working Manual Volume ill. Chap-ter V of the Bye-laws contains the genaral trading provisions. Ac-cording . to bye-law ( 1) (b) al! Transferable Specific Delivery Contracts shall be in writing in the prescribedJonns (Appendix II for jute goods and Appendix IV for raw jute), Clause (g) of the aforesaid bye-laws ( 1) laid down that all transferable speci-fic delivery contracts shall be subject to the provisions of the bye. laws. Bye-laws 15 and 17 may be reproduced:

¶15"No member shall enter into a transferable spe-cific delivery contract in raw jute and/ or jute goods otherwise than on the tenns and conditions prescribed under these Bye-laws."

¶17"Any transferable specific delivery contract en-tered into a raw jute and/or jute goods which at the date of the contract is in contravention of the provisions of any of the Bye-laws l(c), 13, 14, 15 and 16 of-Chap-ter V shall be illegal under the provisions of Section 15(3A) of the Forward Contracts (Regulation) Act, 1952."

The main controversy has centered Qn the question whether the contracts out of which the disputes arose were in the form set out in Appendix II in the Working Manual. It was maintained by the appellant that although the contracts out of which the disputes arose did not strictly conform to the ptescribed form but they were substantially in the same tenns as were contained in the form. As only substantial compliance was necessary the appel-lant could not be denied the benefit of bye-laws contained in Chapter X of the Working Manual relating to arbitration. Bye-law ( 1) of that Chapter provides that arbitration of any claims and disputes whether admitted or not arising out of or in relation to all transferable specific delivery contracts in raw jute and/or jute goods between members or between members and non-mem-bers under the provisions of the bye-laws shall be referred to the JI Tribunal of Arbitration either of the Bengal Chamber of Com-

merc.:: and Industry or of the Indian Chamber of Commerce, Calcutta, as is agreed in the contract in accordance with the rules framed by the said Chamber for the purpose of arbitration by jts tribunal from time to time provided where in a T.S.D. contract the i:ame of the Tribu:nal of Arbitration of either of the aforesaid two Chambers is omitted, such roference sliall be made to the Tribunal of Arbitration of the Bengal Chamber of Commerce and Industry. The case of the respondent, however. was that the CC¥I-tracts were not in the form contained in Appendix II ijll the Work-ing Manual which was the prescribed form under the Lye-laws ~d therefore the bye-laws including the one relating to arbitration in Chapter X could not be made applicable for the purpose of refer-ring the disputes to the Tribunal of Arbitration whlch, in the present case, was thr. Bengal Chamber of commerce and Industry, Calcutta. The High Court came to the conclusion that the con-tracts in questi011 violated bye-laws '1 (b) and 15 in Chapter V of the Working Manual. The contravention of these bye-laws rendered the contracts illegal under the provisions of bye-law 17 ·Of the same Chapter. The learned J ud,ge noticed in particular the absence of any term in the contracts similar to clause (2) in the prescribed form in ·Appendix !I which is as follows :

"Buyers tc give ...... ., •.... :clear working days n notice to place goods alongside:'

Now in the contracts no such term appeared that the buyers would give clear notice to place goods alongside, of the number ·of work-ing days specified. It has been contended before us on behalf of the appellant that the mere absence of this condition or term in the contracts was not sufficient to take them outside the prescribed form which had only to be substantially complied with ·and it was not necessary that blanks in each and every condition in the form should have been filled up. It has further been urged that bye-law 1 (b) of Chapter V could not be regarded as mandatory re-quiring the details in the form in Appendix II to be completed in all cases. Even with reforence to condition (2) in the ptes-cribed form it has been submitted that if the number of days was not specified a reasonable time should have been read into that condition. In other words the buyers were to give notice to place goods along side within a reasonable time.

In our opinion, the High Court was right in holding that the contracts in question were not in the prescribed form and thus they did not comply with the requirement of bye-law 1 (b) of Chapter V. There can be no manner of doubt that that bye-law is man-datory when read with bye-laws 15 and 17. It must be remem-bered that under bye-law 1 ~ no member shall enter into any trans-ferable specific delivery contract otherwise than on terms .and conditions prescribed under the bye-laws and under bye-law 17 if there is a contravention, inter.alia, of bye-law 15 the contract.shali be rendered illegal by virtue of the provisions contains in s. 15 (3A) Jf the Act. Section 11(3)(aa) specifically empowers the Exchange to make bye-Jaws the contravention of any of which shalJ make a forward contract entered into otherwise than in accor-dance with such bye-laws illegal. If, therefore, the contracts in question di not comply with the requirement of bye-law I ( b) o.f Chapter V th~y would be rendered illegal and •1oid.

It is true that in the letters evidencing th~ contracts it was mentioned "all other terms and conditions of the East India and Hessian Ex~hange standard contract will be applicable", which may be taken to import conditions 1 to 7 given in the penultimate column of the prescribed form. . There would still be non-com-pliance with condition No. 2 reproduced before. Even if it was not necessary to use the same language the number of clear work - ing days had to be specified which was not done in the contracts \n dispute. Condition No. 2 cannot be· regarded as inconsequen-tial because it must be stipulated how many working days notice has to be given by the buyers to place goods alongside "export vessel in the Port of Calcutta". Literal compliance with the pres-cribed form may not be essential but if the co.ntract does not contain all the terms and conditions set out in the form the contract will be void under the provisions set out before; (See the ratio of thf; decision in Radhakrisson Gopikisson v. Balaniukand Ramchandra.

For the reasons given above the appeals must fail and they are dismissed with costs. One !!earing fee.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2012 .and 2013 of 1966.

Appeals by special leave from the judgments and orders dated April 4, 1966 of the Calcutta High Court in Matters Nos. 26 and 27 of 1966.

A. K. Sen, 0. P. Khaitan and D. N. Gupta, for the appellant (in C.A. No. 2012 of 1966).

0. P. Khaitan and D. N. Gupta, for the appellant (in C.A. No. 2013 of 1966).

S. T. Desai, H. K. Puri and K. K. Jain, for th~ respondent (in C.A. No. 2012 of 1966).

H. K. Puri and K. K. Jain, for the respondent (in C.A. No. .2013 of 1966).