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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 178 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 180 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. 179 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 181                     "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. 184                     "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. 185     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. L10SupCl:67-  13 186