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PETITIONER: FORT GLOSTER INDUSTRIES LTD.

       Vs.

RESPONDENT: SETHIA MERCANTILE (P) LTD.

DATE OF JUDGMENT: 19/03/1968

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. MITTER, G.K.

CITATION:  1968 AIR 1308            1968 SCR  (3) 450

ACT: Forward   Contract--Discrepancy  between  bought  and   sold notes--Contract whether binding--Other evidence whether  may be  looked  into--Forward Contracts (Regulation) Act  74  of 1952, s. 11--Bye-laws framed under--Effect of bye-laws  7(c) and 8(b) on construction of contract,

HEADNOTE: The  appellant and the respondent wore both members  of  the East India Jute and Hessian Exchange Ltd., *ad were bound by its rules -and regulations framed under s. 11 of the Forward Contracts  (Regulation)  Act 74 of 1952 for  regulating  and controlling  forward  contracts  in  the  jute  trade.   The appellant  in  August  1960  agreed  to  purchase  and   the respondent  to  sell  750 bales of  Pakistan  raw  jute  for delivery during October and/or November, 1960.  According to the  custom  of the trade which was recognised by  the  bye- laws,  the  brokers  sent  a sold  note  on  behalf  of  the respondent  to  the appellant, and issued a bought  note  on behalf  of the appellant which was sent to  the  respondent. Differences  arose  between the parties in  respect  of  the execution of the contract and the appellant referred a claim against the respondent to the Tribunal of Arbitration of the Bengal  Chamber  of Commerce and Industry.   The  respondent thereupon  moved on the original side of the  Calcutta  High Court,  a petition under s. 33 of the Arbitration Act,  1940 challenging  the  existence  and  validity  of  the  alleged arbitration  agreement between the parties.   The  principal ground in ’support of the petition was that the terms of the bought  and sold notes in respect of payment  and  otherwise did  not tally, and on that account there was  no  concluded contract.   In  the  affidavit filed by  the  appellant  the genuineness  of the sold note set up by the  respondent  was questioned.   The  High  Court  decided  in  favour  of  the respondent  and the appellant by special leave came to  this Court. HELD : (i) The term as to payment is an important term of  a written  contract.  The bought and the sold notes  have  the bye-laws to be in writing and in the prescribed form and  if there  be any discrepancy between the two i.e. the terms  as to  payment are specified in one note and not in the  other,

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prima facie, there is no concluded contract. 1455 B-C] (ii)  In view of the bye-laws of the Association which  make it obligatory on the parties that the terms of the  contract shall  be  in  writing and that they shall be  in  the  form prescribed, it could not be held that, apart from the  terms of  the  bought and the sold notes which by  custom  of  the market  are issued, evidence may be led to- prove  that  the parties  had  agreed  to certain terms not set  out  in  the bought and sold notes. [456 El (iii) The bought note did not comply with bye law 7(c) in so far  as the latter required a letter of authority to  import Pakistan  jute.  In bye-law 8(b) two alternative methods  of payment  were  provided; the bought note  mentioned  one  of them,  while  , the sold note mentioned neither.   In  these circumstances, even if bye-laws 7(c) and 8(b) were read into the  contract  it  could  not be  said  that  there  was  no discrepancy  between  the  bought and the  sold  notes,  The bought  and  sold notes as produced in Court  could  not  be regarded as creating a binding contract. [457 F-458 C] 451 (iv)  The question whether the sold note produced  in  Court Was genuine must ’be decided by the trial court after taking fresh  evidence.  (Case  remanded to trial  court  for  this purpose .) [458 D] Cowie  &  Ors. v. William Remfry and others, 3  M.I.A.  448, Durga  Prosad Sureka & Ors. v. Bhaian Lall & Ors.   L.R.  31 I.A. 122 and Radhakrishna Sivadutta Rai & Ors. v.  Tayeballi Dawoodbhai, [1962] Supp.  I S.C.R. 81. referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal No. 573  ,  of 1965. Appeal  by special leave from the judgment and  order  dated July 26, 1962 of the Calcutta High Court in Award No. 181 of 1961. S.   T.  Desai,  S.  Tibriwala, Sobhag Mat Jain  and  B.  P. Maheshwari, for the appellants. S.   V.  Gupte, C. M. kohli and G. R. Chopra, for  the  res- pondent. The Judgment of the Court was. delivered by Shah,  J.  The  East India Jute  &  Hessain  Exchange  Ltd.’ hereinafter  called "the Association%-is recognized for  the purpose of the Forward Contracts (Regulation) Act 74 of 1952 as an association concerned with the regulation and  control of   forward  contracts  in  jute  and  jute   goods.    The Association  has,  under  S. 11  of  the  Forward  Contracts (Regulation) Act, with the previous approval of the  Central Government,  made bye-laws to regulate and  control  forward contracts  in  jute  and  jute goods,  and  for  trading  in Transferable  Specific  Delivery Contracts in raw  jute  and jute goods.  Clause I (a) in Ch.  V of the bye-laws provides that no trading in Transferable Specific Delivery Contract,- in any delivery or deliveries in raw jute and/or jute  goods shall be effected otherwise than between members or  through or  with any member, or where the services of a broker,  who is  not a member, are employed by a member,  otherwise  than through  a licensed broker.  Clause l(b) provides  that  all Transferable Specific Delivery Contracts shall be in writing in the prescribed forms. The  appellant and the respondent are members of  the  Asso- ciation.   On  August  I 1, 1960, the  appellant  agreed  to purchase  and  the respondent agreed to sell  750  bales  of

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Pakistan  raw jute at the rate of Rs.- 103 per bale  of  400 lbs.  net ex-Narayanganj and/or Daulatpur and/or Khulna  for delivery  during  October  and/or  November  1960.   In  the transaction  W. Haworth & Co. (P) Ltd. acted as brokers  for both  the  parties.  According to the custom  of  the  trade which is recognized by the bye-laws, the brokers sent a sold note  on  behalf  of the respondent to  the  appellant,  and issued a bought note on behalf of the appellant which 452 was sent to the respondent.  The goods contracted to be pur- chased  by the appellant were to be imported from  Pakistan. The  appellant was in terms of the sold note to  furnish  to the  respondent  import licence and a  letter  of  authority issued  by the proper officer authorising the respondent  or his  nominee to import the requisite quantity of  jute  from Pakistan for delivery to the appellant.  For importing  jute from  Pakistan, a letter of credit had, under the  terms  of the contract, to be opened by the respondent. Differences arose between the parties in respect of the exe- cution  of  the  contract  and  on  January  11,  1961,  the appellant referred its claim for Rs. 1,17,750/- against  the respondent  to  the Tribunal of Arbitration  of  the  Bengal Chamber  of  Commerce  and Industry, on the  plea  that  the respondent  had  failed  to  open a  letter  of  credit  for importing  the stipulated 750 bales of "jute cuttings"  from Pakistan according to the terms of the contract. On  June  26, 1961, the respondent moved,  before  the  High Court  of  Judicature at Calcutta on its  original  side,  a petition  under  s. 33 of the Arbitration Act,  1940,  inter alia, for the Following orders : (a)  that  the  existence or validity or  otherwise  of  the alleged arbitration agreement dated August 11, 1960, between the  appellant  and the respondent be adjudicated  upon  and determined by the High Court; and (b)  that  it  be  declared  that  the  alleged  arbitration agreement is void, illegal and ineffective and of no  effect and such arbitration agreement to be set aside. The principal ground in support of the petition was that the terms  of  the bought and sold notes did not tally,  and  on that account there was no concluded contract. In support of the petition one Sohanlal Sethia a director of the  respondent affirmed an affidavit.  The appellant  filed its affidavit in reply contending, inter alia, that the sold note  set  up by the respondent in support of  its  petition under  s.  33 of the Arbitration Act was not the  sold  note issued  by  the brokers at the time when  the  contract  was entered  into.  An order was passed by the High Court  under the  proviso to s. 35 of the Arbitration Act directing  that the  petition  be set down for hearing on  evidence  on  the following issues : "1.  (a)  Do  the Bought and Sold  Notes  vary  in  material particulars as alleged in paragraph 2 of the petition ? (b)  If so, what is the effect thereof ? 2.   (a) Is the Sold Note which has been produced in 453 .lm15 Court by the seller the original Sold Note ? (b)  If so, what is the effect thereof ? 3.  Is there a subsisting arbitration agreement between  the parties ?" One  Jitendra Nath Basu, Manager of the respondent, and  one Sudhir  Kumar De, Head Clerk of W. Haworth & Co.  (P)  Ltd., were examined in support of the case of the respondent.   On behalf of the appellant Shib Narayan Mundhra, an employee of the  appellant, was examined.  A. N. Ray, J., declared  that

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there  was no concluded arbitration agreement  dated  August 11,  1960,  between the parties.  Against that  order,  this appeal has been preferred with special leave.               Two questions arise in this appeal:               (1)  Whether there was a lawful  contract  for               sale and purchase of jute cuttings between the               appellant and the respondent; and               (2)  Whether  the  sold note  set  up  by  the               respondent was a fabricated document set up in               collusion with W. Haworth & Co. (P) Ltd. The High Court has answered both the questions in the  nega- tive. The  form  of  contract prescribed by the  Bye-laws  of  the Transferable Specific Delivery reads as follows :               "The East India Jute & Hessian Exchange  Ltd.,               Calcutta                                          APPENDIX IV               Calcutta........ 19.....               Transferable Specific Delivery’               Contract for Raw Jute.               No...................               To Messrs Dear Sirs,....................               We  have, subject to the terms and  conditions               hereinafter  referred  to,  this  day,  bought               from/sold to............ by/your order and               on your account, the following goods which are               *Pakistan Jute/Jute:-               ---------------------------------------------------- --------               Crop  19....19....maunds/kilograms,  bales  Of               jute/mesta/Bimli/cuttings,   of   the    mark,               assortment  and quality as per margin  and  in               sound, dry storing condition at the rate of               Rupees               Rupees               Rupees *Score out if not applicable. 454               free to buyers’ mill, siding and/or ghat.               Weight guaranteed at buyers’ mill.               Delivery to :-               Shipment or despatch during:-               Payment:-               Arbitration :-               Re-weighment               The  foregoing terms and -,conditions as  well               as  other terms and conditions  applicable  to               this  contract  are  as  per  the  terms   and               conditions   of  the   Transferable   Specific               Delivery  Contract  for raw jute of  the  East               India Jute & Hessian Exchange Lid.,  Calcutta,               and  are  subject  to the  bye  laws  of  that               Exchange for trading in Transferable  Specific               Delivery  Contracts for raw jute in force  for               the time being.               Brokerage at .... per cent.                                                 Yours               faithfully,                                            Member/Licensed               Broker.                        The   East  India  Jute   &   Hessian               Exchange Ltd.               ----------------------------                                 (CONFIRMATION SLIP)               Received                                  from

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             Shri/Messrs..............his/their  Contract               No....dt...and  I/we  confirm  having   bought               from/sold to through him/them .........." The respondent claimed that the terms of the bought and  the sold notes issued by the brokers did not tally and there was ,on  that  account no contract between  the  parties.   They claimed  -that whereas in the bought note under the  heading "payment" it was recited: "Cash on presentation in  Calcutta a fun set of shipping documents and insurance cover", in the sold  note tendered in evidence by the respondent  no  entry was made under that heading.  In both the notes there was, a note to, the following -effect               "Buyers to provide import licence, during  the               shipment period serially to their purchase  of               Pakistan   cuttings.    In   case   of    non-               availability  of  licence  in  full-  or  part               thereof,  the quantity thus remained  will  be               treated as cancelled without any difference to               either parties." At  the foot of the bought note it was recorded -Sellers  to open Letter of Credit", but no such recital was found in the sold note.  Again at the foot of the bought note the rate of brokerage was 455 not  incorporated,  whereas in the sold note it  was  stated that  the  rate  of  brokerage was 1  per  cent.   Ray,  J., observed that the bought and the sold notes differed and  on that account there was no contract between the parties.  The learned Judge did not set out in detail what in his  opinion were the differences between the two notes.  But it is clear that he relied upon the discrepancy in the recital under the heading  "payment".  The term as to payment is an  important term  of a written contract.  The bought and the sold  notes have by the bye-laws to be in writing and in the  prescribed form, and if there be any discrepancy between the two, i.e., the terms as to payment are specified in one note and not in the other, prima facie, there is no concluded contract.   In Cowie and others v. William Remfry and others(’) the  bought and the sold notes in respect of a contract for the purchase and  sale of indigo differed in certain material terms.   In an  action brought by the sellers against the purchaser  for nonperformance  of the contract contained in the sold  note, the Judicial Committee held that the transaction was one  by bought  and  the  sold notes,  and  that  the  circumstances attending  the purchaser’s alteration of the sold  note  and affixing  his  initials, were not sufficient  to  make  that note,  alone,  a binding contract, and that  there  being  a material variation in the terms of the bought note with  the sold  note, they together did not constitute a binding  con- tract. Counsel  for the appellant urged that a discrepancy  between the terms of the bought and the sold notes may be  explained by  extraneous  evidence, and that Cowie’s case  (1)  merely lays  down a presumption and not an absolute rule.   Counsel relied  upon the observations in Remfry’s Sale of  Goods  in British  India-Tagore Law Lectures 1910 at p. 69,  and  upon the  opinion  expressed in Woodroffe & Ameer  Ali’s  Law  of Evidence, 11th Edn., at p. 1533, that the rule laid down  by the Judicial Committee raises merely a presumption which may be  rebutted  by  evidence.  Counsel also  relied  upon  the observations  of  the  Judicial Committee  in  Durga  Prosad Sureka and others V. Bhajan Lall and others (2) that               "In  India a contract of sale can be roved  by               parol been falsified, the aggrieved  purchaser               was  entitled to disregard them and prove  his

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             contract  by  other and  antecedent  material.               This he has done conclusively by the  evidence               of the broker and by the telegram. But  in Durga Prosad’s case(2) it was established  that  the notes  had been falsified; there was also evidence  to  show that  the  real contract was, and effect was given  to  that contract.  In Cowie’s (1) 3 M.I.A. 448.         (2) L.R. 31 I.A. 122. 456 case(’),  apart from the bought and sold notes there was  no evidence  of the terms of the contract, and since the  terms of the bought and sold notes differed, the parties were  not ad idem.  In Durga Prosad’s case(-’) there was evidence,  of a  parol  contract and the bought and sold  notes  did  not, because  of  fraud,  correctly  record  the  terms  of  that contract.  Again in neither of these cases, the contract was required  by  law to be in writing and in a  form  statutory prescribed.  But the transaction between the parties in  the case in hand is governed by special rules of the Association which  make  it obligatory that the contract shall be  in  a particular form and in Writing Durga’Prosad’s case (2)  can, therefore, have no application in the present case. In  Radhakrishna Sivadutta Rai and others v.  Tayeballi  Do- woodbhai(3)  this Court cited Cowie’s case(’) with  apparent approval.  In that case the contract was by the bought-  and sold  notes.   Gajendragadkar, J., speaking  for  the  Court proceeded  to  consider the effect of the  bought  and  sold notes according to the established custom of the  mercantile world  and  accepted  the contention  for  counsel  for  the respondent  that  according to  the  established  commercial usage  if  there is any variation or disparity  between  the bought  and sold notes, ’the consequence follows,  from  all legal principles, that no binding contract has resulted. In  view  of the bye-laws of the Association which  make  it obligatory  on  the parties that the terms of  the  contract shall  be  in  writing and that they shall be  in  the  form prescribed, we are unable to hold that, apart from the terms of  the bought and sold notes which by custom of the  market are  issued, evidence may be led to prove that  the  parties had  agreed to certain terms not set out in the  bought  and sold notes. in  the bought note the price was made payable in  "Cash  on presentation  in Calcutta a full set of  shipping  documents and  insurance cover".  There was no term in the  sold  note about  the  payment of price.  Counsel  for  the  appellant, however,  contended  that  under  the  prescribed  form  the contract  is  made  subject  to  the  terms  and  conditions hereinafter  referred  to and it is expressly  recited  that "the  foregoing terms and conditions as well as other  terms and  conditions applicable to this contract are as  per  the terms  and conditions of the Transferable Specific  Delivery Contract  for  raw  jute of the East India  Jute  &  Hessian Exchange Ltd., Calcutta, and are subject to the bye-laws  of that Exchange for trading in Transferable Specific  Delivery Contracts  for  raw jute in force for the time  being".   He submits   that  bye-laws  7(c)  and  8(b)  framed   by   the Association  being  made part of the contract, there  is  in truth no discrepancy between the bought and (1) 3 M.I.A. 448. (2) L.R. 31 I.A. 122. (3) [1962] Supp.1 S.C.R. 81. 457 sold  notes.   In  Ch.  IX, bye-law 7(c) insofar  as  it  is material, reads               "In  the  case  of Pakistan  Jute,  buyers  to

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             deliver  to  sellers,  or  sellers’   nominee,               letter  of  authority to import  the  Pakistan               Jute or open confirmed, irrevocable Letter  of               Credit  in terms of paragraph 8(b)(ii)  within               14  working days from the commencement of  the               delivery period of the contract failing  which               there  shall  be free extension  for  delivery               equal  to the period of delay occurring  after               the 14 working days, . . . . If buyers do  not               deliver letter of authority or open  confirmed               irrevocable Letter of Credit within one  month               from  the commencement of the delivery  period               of the contract, the sellers shall be entitled               to exercise any one of the following options Bye-law  8(b)  which relates to payment or  what  is  called "reimbursement" states, insofar as it is material:               "In  the case of Pakistan  jute  reimbursement               shall be either:-               (i) Cash on presentation in Calcutta of a full               set   of  shipping  documents  and   insurance               cover.........               (ii) By confirmed irrevocable Letter of Credit               for  100% of the value of goods, less  transit               insurance, Bengal Raw Jute Tax (as  applicable               to West Bengal) and freight "to pay", if  any,               to  be opened by buyers with a scheduled  Bank               in  Pakistan within 14 working days  from  the               commencement  of  the delivery period  of  the               contract......" Bye-law 7 (c) contemplates two alternatives.  Where there is a  contract for the sale and purchase of Pakistan Jute,  the buyer  has to deliver to the seller, or seller’s nominee,  a letter  of  authority  to import Pakistan Jute  or  to  open confirmed,   irrevocable  Letter  of  Credit  in  terms   of paragraph  8(b)(ii).   Bye-law 8(b)  also  contemplates  two alternatives  :  in  the case of a  contract  for  sale  and purchase of Pakistan Jute payment has to be made in cash  on presentation in Calcutta of a full set of shipping documents and  insurance cover or by confirmed irrevocable  Letter  of Credit  for 100% of the value of goods.  In the bought  note in question it was recited that the buyer had to provide the import  licence  during the shipping  period.   Nothing  was stated about the Letter of authority to import Pakistan Jute and  the stipulation relating to the application to  provide the  import  licence cannot be equated with the issue  of  a letter  of  authority to import Pakistan Jute.  It  is  true that  under bye-law 7(c) the buyer has to do one of the  two things-he has to issue a letter of authority to 458 import Pakistan Jute or to open a Letter of Credit in  terms of paragraph 8 (b) (ii) and under bye-law 8 (b) payment  may be either in cash on presentation of a full set of  shipping documents  and insurance cover or by confirmed  ’irrevocable Letter of Credit When nothing was written in the sold  note, under  the  head "Payment", either of the  two  alternatives could  be  adopted.  In the endorsement at the foot  of  the note, it was recorded that the seller had to open Letter  of Credit,  but  this  is not found in  the  sold  note.   This further emphasizes that the two parties could not be said to have agreed on how the payment was to be made.  If the  sold note produced in Cou . Ft is genuine, we are unable to agree with  counsel for the appellant that the terms of  the  con- tract were agreed upon between the parties.  The bought  and sold  notes  as  produced in Court  cannot  be  regarded  as constituting a binding contract.

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But  the  question whether the; sold note  "was  fabricated’ still  remains to be considered.  Ray, J.,  observed,  after briefly summarising the evidence, that he was unable to  act on the "suggestion of suspicion" and he did not believe that there  was any foundation in the plea of fabrication of  the document. [Their  Lordships remanded the case to the High  Court  with appropriate directions]. G.C.                 Appeal remanded. 459