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PETITIONER: GORDHANDAS PURSHOTTAMDAS SONAWALA AND ANOTHER

       Vs.

RESPONDENT: THE EASTERN COTTON COMPANY

DATE OF JUDGMENT: 31/03/1958

BENCH: BHAGWATI, NATWARLAL H. BENCH: BHAGWATI, NATWARLAL H. KAPUR, J.L. GAJENDRAGADKAR, P.B.

CITATION:  1958 AIR  713            1959 SCR  346

ACT:        Cotton  Contracts-Cotton Association-Statute  Providing  for        cotton contracts to be in accordance with the by-laws of the        Association   -By-laws   prescribing   Forms   of   Contract        Substantial compliance with Form  Validity of the contracts-        Bombay  Cotton  Contracts Act,1932 (Bom.  IV  Of  1932),  s.        8(1).

HEADNOTE: Sub-section (1) of s. 8 of the Bombay Cotton Contracts  Act, 1932, provides: " Save as hereinafter provided in this  Act, any  contract .... which is entered into after the  date  on which  this  Act comes into operation and which  is  not  in accordance  with  the  by-laws  of  any  recognized   cotton association shall be void ". In  respect  of  the transactions  in  cotton  entered  into between   the  parties,  the  appellants  had  to  pay   the respondents  a sum of money for failure to give delivery  of the cotton bales under the 347 contracts, but the payment was made without prejudice to the rights  and contentions of the parties.   Subsequently,  the appellants  sued the respondents for recovery of the  amount on the footing that the contracts were void under s. 8(1) of the  Bombay  Cotton  Contracts Act, 1932, as  being  not  in accordance  with  the  by-laws  of  the  East  India  Cotton Association  Ltd., of which both the -parties were  members, in  as much as the contract notes did not company  with  the terms  contained in the official contract form  provided  by the  by-laws  of Association, by reason of the  omission  to fill  in the blanks relating to measurements and  difference above  or  below  the  settlement  rate.   The   respondents contended  that  the relevant provisions  contained  in  the official  contract form bad either become obsolete  or  were suspended  at all material times.  The evidence showed  that according  to the practice of the trade the parties  to  the contract were not tied down to a literal compliance with the terms  contained  in  the official contract  form  but  were required  to  act  according  to the  position  as  it  then obtained  and that it was sufficient if  they  substantially complied with the requirements of the contract form :

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Held,  that  in the circumstances of the case  the  official contract  form  had  to  be  filled in  so  far  as  it  was practicable  and that the omission to fill in the blanks  in the  contract  notes  did not spell any  departure  from  an essential  or  a characteristic part of the  contract  form; consequently,  the legal effect of the contracts was not  in any manner changed so as to render the contracts void as not being  in  accordance with the by-laws of  the  Association, within  the meaning of s. 8 of the Bombay  Cotton  Contracts Act, 1932. Radhakisson Gopikisson v. Balmukund  Ramchandra,   (1932) L. R. 60 I. A. 63, relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 398 of 1956. Appeal from the judgment and order dated March 19, 1956,  of the Bombay High Court in Appeal No. 45 of 1955, arising  out of the judgment and order dated March 23, 1956, of the  said High Court in its Ordinary Original Civil.  Jurisdiction  in Suit No. 468 of 1951. M.   C.   Setalvad,  Attorney-General  for  India,   N.   P. Nathwani, J. B. Dadachanji, S. N. Andley and Rameshwar Nath, for the appellants. Purshottam Tricumdas, K. K. Desai and I. N. Shroff, for  the respondents. 1958.  March 31.  The Judgment of the Court was delivered by 348 BHAGWATI  J.-This  appeal with a certificate of  fitness  is directed against the judgment and decree passed by the  High Court,of  Judicature at Bombay in appeal from  its  ordinary Original Civil Jurisdiction confirming, though on  different grounds, the judgment and decree passed by a single Judge of that  High Court in Suit No. 468 of 1951 instituted  by  the appellants (Original Plaintiffs) to recover from the respon- dents  (Original Defendants) a sum of Rs. 1,80,099-8-0  with interest and costs. Since the year 1932 the first appellant has been a member of the   East  India  Cotton  Association  Ltd.,   (hereinafter referred to as " the Association " ) as the sole ’proprietor of the firm of Messrs.  Narrondass Manordass There in  after referred  to  as "the member firm").   The  first  appellant along with other partners carried on business in partnership in  Bombay  inter alia as Cotton  Merchants  and  Commission Agents  in  the  name  and  style  of  Messrs.    Narrondass Manordass,  the 2nd appellant (hereinafter referred to as  " the partnership firm ").  The respondents are a  partnership firm and also a member of the Association. Between  September  23,  1947, and December  10,  1947,  the member  firm sold to the respondents 2,300 bales  of  Broach Vijay  Fine  3/4"  Navsari and/or Bardoli  7/8"  Cotton  for March/April 1948 Delivery.  Out of these 2,300 bales,  1,100 bales  were  disposed  of by  means of " Havalas  "  and  in respect  of  the  remaining 1,200 bales, there  were  cross- contracts.   In  the result when the time for "  Delivery  " arrived, sales in respect of 700 bales remained  outstanding and the member firm was liable to give delivery of 700 bales to  the respondents.  As however, the member firm failed  to give  delivery  of the said 700 bales  to  the  respondents, under   the  relevant  by-laws  of  the   Association,   the respondents " Invoiced Back " these 700 bales to the  member firm  on  May 3, 1948, and as a result of this  "  Invoicing Back  " a sum of Rs. 1,07,530-8-0 became due and payable  by the  member firm to the respondents and with regard  to  the

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transactions  of  all  the 2,300  bales  taken  together  an aggregate sum of Rs. 1,79,749-8-0 became due and payable  by the                   349 member  firm to the respondents.  In respect of this sum  of Rs.  1,79,749-8-0, the respondents sent to the  member  firm eight separate " Debit Notes " in respect of varying amounts and finally a consolidated debit note for Rs. 1,79,749-8-0. It  appears  that  the contract notes in  respect  of  these transactions  had been signed by one Ramanlal  Nagindas  who had  been  employed  as  a  salesman  in  the  Ready  Cotton Department   of  the  partnership  firm.    The   appellants contended  that the said Ramanlal Nagindas had no  authority to  enter  into the said transactions or  to  sign  contract notes  in  respect thereof on behalf of the  appellants  and also that the said contracts were not in accordance with the by-laws  of the Association and they therefore denied  their liability   in  respect  of  the  said  transactions.    The partnership firm, however, as the beneficiary under the said contracts decided to pay the amounts claimed by the  respon- dents  without  prejudice to the rights and  contentions  of both  the  parties.   On May 7, 1948, the said  sum  of  Rs. 1,79,748-8-0  was  paid  by the  partnership  firm  and  was received by the respondents in terms of the letter addressed by the respondents on the said date:- "The  payment  is  made by you and accepted  by  us  without prejudice to the rights and contentions of both the  parties in respect thereof.  " A further sum of Rs. 350 being the amount of penalty for the alleged  failure  to tender the aforesaid 700 bales  of  the said  contracts of Broach/Vijay March/April  1948  Delivery, was also paid by the partnership firm to the respondents  on June   6,  1948,  without  prejudice  to   their   aforesaid contentions. The   said  Ramanlal  Nagindas  had  entered  into   similar transactions  with several other merchants and some of  them claimed  arbitration under by-law 38-A of  the  Association. Petitions  were  thereupon filed by the member firm  in  the High Court at Bombay being Petitions Nos.  A/51, A/52,  A/55 and  A/56 of 1949 under s. 33 of the Indian Arbitration  Act inter alia for a declaration that there existed no valid and enforceable arbitration agreement between the parties.   Mr. Justice Shah delivered judgment in the said petitions 350 on  August  20,  1950,  holding inter  alia  that  the  said contracts were void as being not in accordance with the  by- laws  of the Association and allowed those  petitions.   The respondents to the petitions thereupon filed petitions under Art. 136 of the Constitution for special leave to appeal  to this  Court against the said judgment of Mr.  Justice  Shah. These petitions were, however, dismissed by this Court on or about April 6, 1951. The  appellants thereafter by their attorney’s letter  dated May 2, 1951, called upon the respondents to return the  said sum  of I-Is. 1,80,099-8-0 (being the aggregate of the  said two  sums  of Rs. 1,79,749-8-0 and Rs. 350.)  with  interest thereon  at  the  rate  of  6  per  cent.  per  annum.   The respondents  failed and neglected to pay to  the  appellants the said sum or any part thereof with the result that on May 7,   1951,  the  appellants  filed  the  suit  against   the respondents  for  repayment  to them of the  said  sum  with interest and costs. In the plaint as filed the appellants averred that the  said contracts  were void under the Bombay Cotton Contracts  Act, 1932,  as  being not in accordance with the by-laws  of  the

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Association  inter alia in the following respects:  (1)  The contract notes produced by the respondents omitted to  state the difference of Rs......... above or below the  settlement rate  of  hedge  contracts for  the  purpose  of  periodical settlements  as required by by-laws 139 and 141; and (2)  no provision  was made in any of the aforesaid  contract  notes with  regard to the measurement of bales as required by  the official form for delivery contracts prescribed in bylaw 80. The  respondents in their written statement  contended  that there was no by-law which required any person to agree  upon any  difference above or below the settlement rate of  hedge contracts  for the purpose of periodical settlements and  to state  the same.  They further contended that  the  relative provisions  contained  in  the official  contract  form  had become obsolete as at all material times there were no hedge contracts bearing different numbers and in practice the said contracts were not put through periodical settlements. 351 They also contended that at all material times there was  no by law which required any person to agree upon any  specific measurements in respect of the bales agreed to be  purchased inasmuch  as the operation of by-law 101 in  regard  thereto had been suspended by the Board since November 30, 1942. After  the suit reached hearing the appellants  amended  the plaint  by  averring  that by reason of  the  said  payments having  been  made by them and accepted by  the  respondents without prejudice to the rights and contentions of both  the parties there was an implied agreement between them that  in the event of the appellant’s establishing that they were not bound  to pay the said sums to the respondents and that  the respondents  were  not entitled to the payment  thereof  the respondents   would  repay  or  return  the  same   to   the appellants.   This plea was traversed by the respondents  in the supplemental written statement which they filed. The learned trial Judge followed the judgment of Mr. Justice Shah  and  held that the omission of  the  clause  regarding measurement  in  the  contract  notes  did  not  alter   the character  or legal effect of the contracts.   He  similarly held that the omission of any reference in the contracts  to the amount of difference above or below the settlement  rate of  hedge contracts in the last term of the  contract  notes rendered the contracts void.  He however was of the  opinion that  there was no implied agreement between the parties  of the  nature alleged by the appellants and that  the  payment made  by  appellants to the respondents  was  voluntary  and therefore dismissed the appellants’ suit with costs. The  appellants preferred ail, appeal against this  decision and  the appellate Court dismissed the appeal and  confirmed the  decree  passed by the learned trial  Judge,  though  on different  grounds.   The appellate Court  agreed  with  the learned trial Judge that the omission of the term  regarding measurement  in  the  contract  notes  did  not  affect  the character  or legal affect of the contracts.  In  regard  to the  omission to fill-up the difference above or  below  the settlement rate 352 fixed  for  the hedge contracts in the last  clause  of  the contract  notes,  however, the appellate Court  was  of  the opinion that there was no obligation on the parties to agree to  add  or  deduct  the  difference  above  or  below   the settlement  rate  as contended by the  appellants.   If  the parties  did agree then the contract form provided that  the agreement should be set out therein.  If, however, they  did not agree then the first part of cl. (2) of by law 141 would come  into play and the settlement of the delivery  contract

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would go through on the basis of the settlement rate of  the hedge contract.  The omission to fill-up the difference  was thus of no consequence and did not invalidate the contracts. The  appellate Court also differed from the trial  Judge  on the  question of the implied agreement and held that if  the appellants  succeeded in establishing that  the  respondents were  not entitled to receive the payments  the  respondents were bound to repay the sums paid by the appellants to them. In  view,  however,  of  the  conclusion  reached  that  the contracts  were not void, the appellate Court dismissed  the appeal. The  -provisions  of the Bombay Cotton Contracts  Act,  1932 (Bom.  IV of 1932) and the by-laws of the Association  which fall to be considered by us may now be referred to:- Section 8(1) (Bombay Cotton Contracts Act, 1932):     " Save as hereinafter provided in this Act, any contract (whether  either party thereto is a member of  a  recognized cotton  association or not) which is entered into after  the date on which this Act comes into operation and which is not in  accordance  with the by-laws of  any  recognized  cotton association shall be void." By-law 80 of the Association:- "  Forward  contracts between members  how  made:  -Delivery Contracts between members shall be made on the official form given in the Appendix.  Hedge contracts between members  may be verbal or in writing and when in writing shall be in  one or other of the forms given in the Appendix.  Whether verbal or written all contracts shall be subject to the by-laws,                353 provided that in the case of Delivery Contracts By-laws  149 to 163 inclusive shall not apply. The specimen of the official contracts form in triplicate as used in 1947-48 (Vide Exhibit " D ") contained the following terms amongst others:- No. Contract Note From           Brokers To Messrs....................... We  have this day bought by your order and for your  account subject to the By-laws of the East India Cotton  Association Ltd.  From  Messrs......(...) bales of Cotton  at  Rs..  per candy,   delivered   in  Bombay  in  full   pressed   bales. Measurement... tons/per 100 bales. (For delivery contracts only). for the purpose of periodical settlement  of  this contract we agree to  a  difference  of Rs... above/below the settlement rate of hedge contract No. Remarks... Bombay...194 No. Contract Note From          Brokers To Messrs............................ We  have  this day sold by your order and for  your  account subject to the By laws of the East India Cotton  Association Ltd.  To  Messrs...(..) bales of... Cotton...  at  Rs..  per candy,   delivered   in  Bombay  in  full   pressed   bales. Measurement... tons/per 100 bales. (For   delivery  contracts  only).   For  the   purpose   of periodical settlement of this contract we agree to a differ- ence of Rs ... above/below the settlement rate of hedge con- tract No. Remarks ... Bombay ... 194 The  contract  notes which are rendered between  the  member firm  and the respondents, however, contained no term as  to measurement and  so far as the last clause was concerned the blanks  in regard to the difference of Rs...above  or  below the settlement rate of hedge contract No.... were not filled in.

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  The relevant by-laws in connection with these  two  terms contained in the official contract form were by law 101, and by laws 139 and 141:--                        By-law: 101. Claims for excess measurement. In respect of all Forward Contracts, measurement 45 354 shall approximate 13-1/2 tons per 50 bales provided that  in respect  of Forward Contracts, other than  Hedge  Contracts, the  parties may agree upon any other measurement.   In  all Forward Contracts, for any port the rate or rates of freight for  any  excess measurement over 13-1/2 tons per  50  bales shall  be  fixed by the Board from time to time  and  unless otherwise fixed the rate for such excess for all ports shall be  Rs.  15  per  ton in respect of each  lot  of  50  bales measuring  more  than 13-1/2 tons but not more  than  14-1/2 tons  and in respect of each lot of 50 bales measuring  more than  14-1/2 tons Rs. 35 per ton for any excess over  13-1/2 tons. No allowance for excess measurement shall be payable by  the seller:- (a)  unless  the  buyer has given to the  seller  reasonable notice fixing an appointment for measurement, or (b)  unless the buyer submits a claim to the seller within 6 weeks after the complete lot has been weighed over. The Board shall have power from time to time and at any time to   suspend  the  operation  of  this  Bylaw   as   regards measurements.                         By-law: 139. "Settlement  Days.  All Delivery Contracts other than  those excepted  under  By-laws 136 and Hedge  Contracts  shall  be subject to periodical settlements through the Clearing House and  in  every  case the parties to  the  contract  must  be members of the Association.  Settlements of differences  due on  open  contracts and of other liabilities to  be  settled through the Clearing House shall be made once weekly on days which shall be fixed by the Board and notified in a calendar to be published annually. The day on which Balance Sheets are required to be submitted to the Clearing House shall be known as Settlement Day."                         By-law: 141. Settlement rates.-(1) For the purpose of these  settlements, settlement  prices for all positions of the  Hedge  Contract shall  be fixed by the Board on or about the  third  working day immediately preceding Settlement 355 Day.  The prices so fixed shall be I P. M. prices on the day of fixation. (2)In  the case of Delivery Contracts, the settlement  price of the Hedge Contract shall be the basis for the  periodical settlement.  Such allowances as shall be agreed upon by  the parties  in their contract to cover any difference,  between the cotton contracted -for and the cotton which is the basis of the Hedge Contract shall be added to or deducted from the said  settlement  price.   In  the  case  of  contracts  for descriptions  which  are not tenderable  against  the  Hedge Contract the parties may either agree in their contract upon an  allowance  above  or below the Hedge  Contract  for  the purpose  of their periodical settlement or may apply to  the Board to fix settlement rates.  ........................................................... The  only question for our determination in this  appeal  is whether  the  contracts  between the  parties  were  not  in accordance with the by-laws of the Association and therefore

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void.  There is no doubt that all the contracts were subject to  the  by-laws  of the Association.   The  question  still remains  whether  they were in accordance with  the  by-laws because  if they were not in accordance with  those  by-laws they would be void.  The expression " not in accordance with "  has  been  the  subject  of  judicial  interpretation  in Radhakisson  Gopikisson v. Balmukund Ramchandra (1).   Their Lordships  of  the Privy Council there held  that  the  form prescribed  was  not  a stereotyped  one  and  that  literal compliance  with  it  was not  essential.   The  only  thing required  was that the contract notes must contain  all  the terms and conditions set out in the form in order to  comply with   it.   Their  Lordships  were  of  the  opinion   that substantial compliance with the form would be enough and  if such  sufficient compliance with the by-laws was found in  a particular  case  that would save the contracts  from  being declared void as not being in accordance with the by-laws. It was, however, urged on behalf of the appellants that  by- law 80 prescribes the form in which the contracts were to be entered into and all the terms and (1)  (1932) L.R. 60 I.A. 63. 356 conditions incorporated in the official contract form had to be strictly complied with, that the omission of the term  as to measurement as also the omission to fill in the blanks in regard  to  difference  of  Rs......  above  or  below   the settlement  rate  of hedge contract  No.  .................. were  such  departures  from the form  prescribed  as  would render the contracts void because it could not be then  said that  there  was sufficient compliance  with  the  statutory form.  Reliance was placed in support of this contention  on Burchell  v. Thompson (1), Ex-parte Stanford, In  re  Barber (2),  Thomas  v. Kelly (3) and Parsons v. Brand  &  Cols  v. Dickson  (4).  The principle emerging from  these  decisions was  enunciated to be that if the document executed  by  and between  the parties departed from a characteristic part  of the form prescribed or made a difference in the legal effect of  the instrument, it would not be in accordance  with  the form and would therefore be void.  It would all depend  upon the   materiality   of  the  -particular   term   which   is incorporated  in the form.  If the non-compliance  with  the requirements  of the form were such as to make the  document something  else  by reason of a characteristic part  of  the form  not  being followed or the document  would  lose  some legal effect which it would have had if the proper words had been inserted therein, it cannot be said that there is  sub- stantial compliance with the statutory form. Considering  the  term as to measurement in this  light,  it appears  that the same had its basis in the requirements  of the trade in regard to the pressing of the bales.  The bales which  were  the subject-matter of  these  forward  delivery contracts were either meant for transport within the country or  export outside the country.  The bales were to be  fully pressed  so  as  to  occupy  the  minimum  space  either  in transport  by  rail or by steamer and  initially  they  were bound  with hoops.  The baling hoops were however  difficult to  obtain  from Japan and therefore the bales  came  to  be bound  with ropes made of cotton, jute coir and  hemp.   The bales thus bound otherwise than with hoops (1)  [1920] 2 K. B. 80. (3)  (1888) 13 App.  Cas. 506.(2)  (1886) 17 Q.B.D. 259. (4)  (1890) 25 Q.B.D. 110, 357 occupied more space and difficulties were encountered by the merchants  because  of  their being obliged  to  pay  -extra

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insurance and freight charges in respect of such bales.  Not only did the railways charge more for the transport of  such bales, the shipping companies also did so and the  insurance companies  charged  higher rates for insurance  because  the bales were not pressed in a manner which would minimise  the risks  of  insurance.   All these factors  brought  about  a situation  creating difficulties between the purchasers  and the  sellers  of  cotton and these difficulties  had  to  be resolved by the Association. by law 101 had proceeded on the basis   of  cotton  bales  being  bound  with   hoops,   the approximate measurement in tons as agreed and understood  in the  trade  being, 13-1/2 tons per 50 bales.  That  was  the standard measurement.  It was open however to the parties to agree upon any other measurement.  If any measurement  other than  the standard measurement was agreed to, an  adjustment had  to be made by reason of such difference in  measurement and   by-law  101  provided  that  certain  amount   therein specified had got to be paid by the seller to the  purchaser as and by way of allowance for such excess measurement. Towards October, 1942, the situation in regard to the baling hoops  deteriorated  so much that it was  thought  desirable that  bales  bound  with ropes should  be  permitted  to  be tendered  under the by-laws of the Association and that  the operation of by-law 101 as regards measurements  should   be suspended.   There were heavy fluctuations in the prices  of the  materials  permitted to be used, and it  was  therefore thought  advisable  to fix certain allowances from  time  to time or before the beginning of the delivery periods  taking into consideration the extra insurance and freight  charges, if any, in respect of such bales.  A sub-committee appointed by  the Association made a report in this behalf on  October 29, 1942, and on November 20 1942, the Board of Directors of the   Association   passed  a   resolution   approving   the recommendations  of the subcommittee with this  modification that  the allowance to be prescribed in the price  of  bales bound with ropes 358 as  against the price of bales bound with hoops as  provided in  by-laws 96 and 119, be fixed before the commencement  of the season and not be altered from time to time.  The  Board of   Directors  issued  a  notice  on  November  30,   1942, suspending  the  operation  of  bylaw  101  as  regards  the measurement until further notice. The  position  as  it obtained at the  time  when  the  suit contracts  were entered into was that by-law 101 as  regards measurement had been suspended and there was no necessity so far as the by-laws went to make any mention in the contracts in regard to the same.  If the claim for excess  measurement had  not to be entertained, it was not at all  necessary  to mention  the  measurement in the contract  forms  and  there would be substantial compliance with the contract form, even though no measurement was mentioned therein, the very  basis for the mention of such measurement having disappeared. It  was,  however, urged on behalf of  the  appellants  that measurement was an essential part of the description of  the goods sold and the suspension of by-law 101 made it all  the more  necessary that the measurement should be specified  in the  contract form itself.  The standard  measurement  which had  been  mentioned in by-law 101 had  disappeared  and  it would therefore be necessary to mention in the contract form what was the measurement on the basis of which the price  of the contract had been fixed by and between the parties.   If the  bales  actually tendered measured more in  weight  than what  was  actually  agreed upon,  the  purchaser  would  be entitled  to  obtain from the seller an allowance  for  such

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excess  measurement  and  that was the  reason  why  it  was necessary after the suspension of by-law 101 to mention  the agreed measurement between the parties. This  argument however ignores the fact that  simultaneously with the suspension of the operation of the by-law 101,  by- laws  96  and  119  which  referred  to  forward  and  hedge contracts  respectively were altered and provision was  made therein  to incorporate measures consequent upon the  tender of bales bound with ropes 359 in  place  of bales bound with hoops.  The  consequences  of such tenders were worked out in the by-laws as thus  amended and  allowances  in the price of bales bound with  ropes  as against  the  price  of bales bound  with  hoops  were  also provided for.  These allowances were in accordance with  the resolution of the Board dated November 20, 1942, to be fixed before the commencement of the season and if such allowances were  provided for there was nothing further to be  done  in regard  to  the difference in measurement, if any.   If  the situation  which obtained after November 20, 1942,  provided for  a  tender of bales bound with ropes  instead  of  bales bound with hoops in fulfilment of the contracts entered into between the parties, that was well known to all the  members of the Association and it was open to them while fixing  the prices  themselves  to take count of the extra  charges  for insurance  and  freight  which  would  be  payable  by   the purchaser  in  the  event of bales bound  with  ropes  being tendered instead of bales bound with hoops.  It,  therefore, follows that the omission to mention the measurements in the contract   notes  did  not  render  the  contracts  not   in accordance  with the by-laws.  There was no such  by-law  in operation  at the time and even otherwise there was no  need whatever to incorporate in the contract notes any term as to measurement.  It could not therefore be said that there  was any departure from an essential or a characteristic part  of the contract form or that the legal effect of the  contracts was changed so as to invalidate the same. When  we  come to the term in regard to the  differences  of Rs...............  above  or below the  settlement  rate  of hedge  contract  No...............  we find  that  that  had reference to periodical settlements of contracts through the clearing  house.  In accordance with bylaw 139 all  delivery contracts  other  than those excepted under by-law  136  and hedge  contracts  were  subject  to  periodical  settlements through the Clearing House which settlements had to be  made once  weekly on days fixed by the Board.  If  the  contracts had  got to go through the clearing house in this manner  it was necessary also that settlement rates should be fixed 360 and  by-law 141(1) provided that settlement prices  for  all positions  of  the  hedge contract should be  fixed  by  the Board.  The settlement prices thus fixed were to be taken as the   basis  for  the  periodical  settlement  of   delivery contracts  and it was further provided in bylaw 141(2)  that such  allowance  as shall be agreed upon by the  parties  in their  contracts to cover any difference between the  cotton contracted  for  and the cotton which was the basis  of  the hedge  contract shall be added to or deducted from the  said settlement  prices.   This was the basis  of  the  provision contained in the relevant term of the contract form.  In the case  of contracts for descriptions not  renderable  against the  hedge  contract it was open to the  parties  either  to agree upon an allowance above or below the hedge contract or they  would  make  an application to the Board  to  fix  the settlement  rates.  Whenever there was an agreement in  this

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behalf  the  parties  were to mention  the  difference  thus agreed into the contract form and the periodical settlements of delivery contracts were to be effected on that basis. The question arises as to whether the parties were bound  to enter into any such agreement at the time they entered  into the contracts.  It was contended on behalf of the appellants that  such  an  agreement was  necessary  because  it  would otherwise involve the parties into payment of large sums  of money  on  the  settlement day next after  the  day  of  the contract.  The hedge contracts appertained to cotton of  the lowest  average and if the quality of cotton which  was  the subject-matter  of the contract between the parties was,  as was usual, of a higher variety, it would involve the payment of  large  amounts  by  way  of  differences  on  the   next settlement  day,  which certainly would not  be  within  the contemplation  of the contracting parties.  If that was  so, the parties would agree to a difference between the rates of the cotton contracted for and the cotton which was the basis of  the  hedge contract and this difference above  or  below would serve to minimize the incidence of such payment on the next  settlement day.  It was, therefore, submitted that  it was  incumbent on the parties when entering into a  contract to 361 fill-in  this term as to differences.  If they  agreed  upon such differences the blank had to be filled-in  accordingly; but   even  though  they  did  not  agree  upon   any   such differences,  it  was necessary for them to mention  in  the contract form that the difference above or below the rate of the hedge contract agreed upon by them was nil. It  was  contended  on  the other  hand  on  behalf  of  the respondent  that  there  was no obligation  on  the  parties entering  into the contract to fill in that term.   If  they agreed upon the difference all well and good but if they did not  agree  upon the difference, the first  part  of  by-law 141(2) stepped in and the consequences had to be worked  out as  if there was no agreement and the differences had to  be paid on the settlement day next ensuing on the basis of  the difference  between  the contract rates and rates  of  hedge contract,  even  though  it  may  involve  a  payment  of  a substantial   amount  all  at  once.   According   to   this submission,  in  the  case  of  contracts  for  descriptions tenderable  againt the hedge contract two  positions  arose: viz.,  (1)  parties  to the contract may not  agree  to  any difference  in which case it would not be necessary to  fill in  that term in the contract note or (2) they may agree  to the  difference  in  which event  the  difference  would  be mentioned  in the contract note.  In the case  of  contracts for descriptions which were not renderable against the hedge contract three positions would arise, viz., (1) the  parties may  not agree upon any difference in which event  it  would not be necessary to fill in the term as to difference in the contract  notes;  (2)  the  parties  may  agree  upon   such difference  and  that  would have to  be  mentioned  in  the contract  notes or (3) the parties could apply to the  Board to fix the settlement rates. It  appears  that  the contention urged  on  behalf  of  the appellants would be more in consonance with business idea,-, because  no business man would think of immediately  forking out a large sum of money on the next ensuing settlement day. It would be tantamount to paying the price of the goods or a substantial  part  thereof  long  before  the  due  date  of delivery ever 46 362

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arrived.  While recognizing the necessity of arriving at  an agreement in this manner we are, however, not impressed with the  argument that in the event of no such agreement  as  to the  difference  having  been reached it would  even  so  be necessary   to  mention  in  the  contract  note  that   the difference  agreed upon was nil.  When the  parties  entered into  the transactions all the terms and conditions  of  the contract  would  certainly  be negotiated  and  agreed  upon between them.  It would be open to them, in view of the  by- laws  above referred to, to agree upon the difference  above or  below  the settlement rate of hedge  contracts  for  the purpose of facilitating the settlements through the clearing house.   But  if  no  such difference  above  or  below  the settlement rate of hedge contracts were agreed upon  between the  parties, it would not necessarily follow that the  word nil had got to be mentioned in the contract notes.  The very fact  that no difference above or below the settlement  rate of   hedge   contracts  was  agreed  upon  in   the   manner contemplated would be enough to spell out an agreement  that no  such  difference was to be computed in arriving  at  the settlement rates in respect of these contracts.  If that was the true position it would be Superfluous to write the  word "  nil  "  as  contended  for  by  the  appellants  and  the consequences,  of such non mention would be the same  as  if the  difference agreed upon was nil.  By-law 141  (2)  could then be worked out without any difficulty and the settlement rates  in the case of delivery contracts would be  fixed  on the  basis  of the settlement price of the  hedge  contracts taking  into  account  the facts that there  was  either  no difference  which  was agreed upon or  that  the  difference agreed  upon was a specific one which was mentioned  in  the contract notes. It was however pointed out on behalf of the respondents that the  official  contract  form  contained  the  expression  " above/below   the   settlement  rate   of   hedge   contract No.........  Even  though this may have been  in  consonance with the position as it obtained when the hedge contracts of five  different  varieties  were  in  vogue,  involving  the specification  of  hedge  contracts as Nos.  I  to  5,  that position substantially chanced                             363 when hedge contracts of these 5 varieties were abolished and in  their place and stead was substitute, a  hedge  contract called  the 1. C. C. The five varieties of  hedge  contracts were also for different deliveries which did not necessarily coincide one with the other and these contracts were not  on the market all at one time, With the result that it would be necessary if the requirements of the contract form had to be complied  with to fill in the blank not only  by  describing the  hedge contract number, whether it was one or the  other of the numbers I to 5 but also the particular hedge contract of  a particular delivery.  Even if it may be  assumed  that the blank to be filled in in this behalf required a  mention not  only of the hedge contract No but also of a  particular delivery thereof, all that went by the board when the I.  C. C. was substituted in place of the hedge contract Nos.  I to 5. The old contract form which had been prescribed by by-law 80  was continued without any change being effected  therein by virtue of such substitution and if at all the parties  to a contract were to fulfill the requirements of the  contract form, it would be necessary   for  them  to strike  out  the words  " hedge contract No and put in their place and  stead the word " 1. C. C. " Even there the 1. C. C. appertained to different deliveries which were not on the market all at one time.   The months of delivery were nowhere required  to  be

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filled  in in the contract form, whether the  contract  form required the parties to have regard to the hedge contract No or the I. C. C., and to that extent, it can be said that the parties were expected to rely upon their commonsense and the practice  of  the trade as to what particular  delivery  was contemplated  when the contracts were entered  into  between them. All this goes to show that the parties to the contract  were not  tied  down  to  a literal  compliance  with  the  terms contained in the official contract form but were required to act  according  to the position as it then obtained  and  if they  substantially  complied with the requirements  of  the contract form that was enough.  If the hedge contract No was not in vogue in the 364 market  they  need  not conform to  that  provision  in  the official contract form but could make the necessary  changes in accordance with the type of hedge contract which was then in  vogue.   Similarly,  they would have to  record  in  the contract  form the agreement reached between them in  regard to the difference of Rs...... above or below the  settlement rate  of  the  hedge contract No...... if  they  came  to  a particular  agreement in that behalf. if, however,  no  such agreement  was  reached  between the  parties-and  here  the effect  of no agreement having been arrived at in regard  to such  difference  would  be the same  as  if  the  agreement between  them  was  that the difference  was  to  be  nil-no mention  need  be made of such difference  in  the  contract form.   The  result of either of the  two  latter  positions would  be  that if the contracts were to  pass  through  the Clearing  House the settlement rates would be determined  on the  basis  of the settlement price of  the  hedge  contract fixed  by  the Board for those various settlements  and  the parties would have to pay to or receive from one another the differences   calculated  on  the  difference  between   the contract rates and those settlement rates. The whole of this discussion, however, is academic by reason of the fact that in practice delivery contracts were not put through any periodical settlements and at all material times the  operation of this term in the official  contract  form’ had  become  obsolete.  This position was  not  disputed  on behalf of the appellants and their counsel stated before the Court that he did not wish to dispute the fact that delivery contracts  were at no time submitted to  periodical  settle- ments  in  the Association.  The effect  of  this  procedure being adopted in the Association was tacitly to suspend  the operation  of these by-laws as to periodical settlements  in respect  of delivery contracts and it would be  superfluous, nay absurd, on the part of the business people entering into contracts  subject  to  the by-laws of  the  Association  to incorporate in the contract form provisions which had become obsolete.   If  the contracts were not to pass  through  the periodical  settlements  in the Clearing House  no  question would 365 ever  arise of settlement rates requiring to be fixed,  much less of the basis of such settlement rates being determined, or  of  the  difference  of  Rs......  above  or  below  the settlement  rate of hedge contracts being ever  agreed  upon between  the  parties.  If under  those  circumstances,  the parties  did not fill in those blanks which required  to  be filled in in the official contract form on the basis of  by- laws  139 and 141 being in operation, it could not  be  said that  they  had  failed to  substantially  comply  with  the requirements  of the official contract form.   The  official

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contract  form  had  to  be  filled in  so  far  as  it  was practicable.   The operation of these by-laws was in  effect suspended  and by the tacit understanding of the trade  they were  to be treated as if they did not exist.  It could  not therefore  be  urged  that  the  parties  were  put  to  the necessity of agreeing to such differences, if having  regard to the circumstances that prevailed, it was impracticable to do  so and if these blanks were not filled in as  originally contemplated  the  contract  notes could  certainly  not  be impeached as being not in accordance with the by-laws of the Association. It  was, however, urged on behalf of the appellants that  if the parties to the contracts intended not to comply with the requirements  of  by-laws 139 and 141 that would  by  itself vitiate  the contracts because in that event  the  contracts would certainly be not in accordance with the by-laws of the Association.    The  parties  in  that  event  intended   to perpetrate  an  illegality  at the  very  inception  of  the contracts  and the contracts were therefore void.  There  is considerable  force  in this argument  but we  do  not  feel called  upon to consider the same in view of the  fact  that that  was not the ground on which the validity of  the  suit contract was challenged in the plaint. We are therefore of the opinion that the omission to fill in those  blanks  in  the  contract notes  did  not  spell  any departure from an essential or a characteristic part of  the contract  form nor was the legal effect of the contracts  in any  manner  changed thereby rendering  the  contracts  void within  the meaning of s. 8 of the Bombay  Cotton  Contracts Act, 1932. 366 Both  these  grounds of attack against the validity  of  the contracts  in  question  therefore fail and we  are  of  the opinion   that  the  contracts  entered  into  between   the appellant,-,  and the respondents were not void as  alleged. The  appellants were therefore not entitled to recover  from the respondents the said sum of Rs. 1,80,099-8-0 or any part thereof as alleged or at all and we are of the opinion  that the  appellate Court was right in rejecting the  appellants’ claim. We  cannot part with this appeal without observing that  the whole   difficulty  has  been  created  by  reason  of   the Association not having made the necessary alterations in the contract  form  in  accordance, with  the  situation  as  it obtained. from time to time.  When by-law 101 was  suspended in operation the Association ought to have deleted the  term as to measurement from the contract form.  When the  by-laws 139  and  141  were virtually abrogated  by  reason  of  the delivery   contracts  not  being  subjected  to   periodical settlements in the Clearing House, the Association ought  to have  similarly  deleted the last clause from  the  official contract  form which required the difference of Rs above  or below the settlement rates of hedge contract No   to      be filled-in by the parties.  Equally untenable west         he retention of the expression " Hedge Contract No   when   the five different varies of hedge     contracts were  abolished and  one  hedge  contract named 1.  C.  C.  was  substituted therefor.   We  fully endorse the observations made  by  the appellate Court in the course of its judgment:-  "  We have had occasion to point out in the past how  badly the by-laws of the East India Cotton Association are drafted and  how  clumsily the forms also settled, and  the  present form is an illustration of what we have had occasion to  say in the past." The  manner  in which the official contract form  which  had

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been settled when the by-laws of the Association came  first to be promulgated has been retained in its pristine glory in spite  of the various changes made in the operation  of  the by-laws  and  the practice of the trade  only  enhances  the difficulties of the parties and enables the parties who  are so minded to raise all 367 sorts  of  disputes tenable or otherwise in order  to  avoid their  liability in respect of the transactions effected  by them  in  the  Association.   It  may  be  hoped  that   the Association will take effective steps to bring the  official contract  form in conformity with the bylaw,%  in  operation from  time to time and the practice of the trade  prevailing in the Association. The  result  therefore is that this appeal  fails  and  must stand dismissed with costs throughout.                              Appeal dismissed.