04 October 1955
Supreme Court
Download

JUGAL KISHORE RAMESHWARDAS Vs MRS. GOOLBAI HORMUSJI

Case number: Appeal (civil) 95 of 1953


1

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: JUGAL KISHORE RAMESHWARDAS

       Vs.

RESPONDENT: MRS.  GOOLBAI HORMUSJI

DATE OF JUDGMENT: 04/10/1955

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA BHAGWATI, NATWARLAL H. SINHA, BHUVNESHWAR P.

CITATION:  1955 AIR  812            1955 SCR  (2) 857

ACT: Bombay  Securities Contracts Control Act, 1925  (Bombay  Act VIII of 1925)-Ss. 3(4) and 6-Sale and purchase of securities by  appellant  on behalf of respondent-Dispute  between  the parties  whether appellant was acting within  his  authority when  he  purchased  the  shares-Relationship  between   the parties  that of principal and agent and not that of  seller and purchaser-Whether falls within purview of s.  6-Contract notes sent by brokers to their constituent-Mere  intimations by  brokers  to constituent-That contract had  been  entered into -Arbitration agreement-Essentials thereof-Rules  framed by Native Share and Stock Brokers’ Association-Complete code by   themselves   Rule  167-Whether  contract   notes   void thereunder.

HEADNOTE: The appellants share-broker carrying on business in the City of  Bombay  and  a  member of the  Native  Share  and  Stock Brokers’ 858 Association-was  employed  by the respondent  for  effecting sales and purchases of shares on her behalf.  The  appellant effected  purchases  of 25 shares of Tata Deferred  and  350 shares of Swadeshi Mills to square the outstanding sales  of the same number of shares standing in her name and sent  the relative contract notes therefor to her.  She repudiated the contracts  on  the ground that the appellant  had  not  been authorised  to close the transactions on the date  mentioned by  him and asked him to square them at a later  date.   The appellant  maintained that the transactions had been  closed in accordance with her instructions.  The appellant referred the  dispute for arbitration to the Native Share  and  Stock Brokers’  Association in pursuance of an arbitration  clause in the contract notes.  The respondent refused to submit  to arbitration  of  the  association on  the  ground  that  the contract  notes  were  void  and  therefore  no  arbitration proceedings could be taken thereunder.  The arbitrators made an  award in favour of the appellant in the absence  of  the respondent  who  declined to take part in  the  proceedings. The  respondent filed an application for setting  aside  the award.   The  Bombay High Court held that the  contracts  in

2

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

question were not ready delivery contracts as defined in  s. 3(4) of the Bombay Securities Contracts Control Act VIII  of 1925  and that they were accordingly void under s. 6 of  the Act and therefore the arbitration clause and the  proceeding taken thereunder culminating in the award were also void. Held  that apart from the question whether the contracts  in question  were for ready delivery or not, they were  outside the purview of s. 6 of Bombay Act VIII of 1925 because  they were not contracts for sale and purchase of securities.  The dispute between the parties was as to whether the  appellant was  acting  within  the  scope of  his  authority  when  he purchased   the  shares.   If  he  was  acting  within   his authority,  the  respondent  was liable to  him.   If  those purchases were unauthorised, the appellant was liable to the respondent for damages.  In either case the dispute was  one which  arose  out  of  the contract  of  employment  of  the appellant  by the respondent as a broker and not out of  any contract   of   sale  or  purchase   of   securities.    The relationship  between the respondent and the  appellant  was that  of  principal and agent, and not that  of  seller  and purchaser. The  contract notes sent by brokers to  their  constituents- are  not  themselves  contracts  for  sale  or  purchase  of securities  within s. 6 of the Bombay Act VIII of  1925  but only intimations by the broker to the constituent that  such contracts had been entered into on his behalf. It  is  settled  law  that  to  constitute  an   arbitration agreement  in writing it is not necessary that it should  be signed  by  the parties, and that it is  sufficient  if  the terms  are  reduced  to writing and  the  agreement  of  the parties thereto is established. The  Rules  framed by the Native Share  and  Stock  Brokers’ Association,  Bombay form a code complete in itself and  any question 859 arising with reference to those Rules must be determined  on their  construction and it would be a mistake to  read  into them the statutory provisions enacted in the Bombay Act VIII of  1925 and therefore the contract notes cannot be held  to be void under Rule 167.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 95 of 1953. On appeal from the Judgment and decree dated the 29th day of June 1951 of the Bombay High Court in Appeal No. 93 of  1949 arising  out of the order dated the 16th September  1949  of the Court of Bombay City Civil Court at Bombay in Award  No. 45 of 1949. M.C. Setalvad, Attorney-General of India (H. J. Umrigar, Sri Narain  Andley,  Rameshwar Nath and  Rajinder  Narain,  with him), for the appellant. H.R. Mehervaid and R. N. Sachthey, for the respondent. 1955.  October 4. The Judgment of the Court was delivered by VENKATARAMA  AYYAR  J.-The  appellant  is  a  share   broker carrying on business in the City of Bombay, and a member  of the  Native  Share and Stock Brokers’  Association,  Bombay. The  respondent,  Mrs. Goolbai Hormusji,  employed  him  for effecting  sales and purchases of shares on her behalf,  and on  6-8-1947  there  was due from her to  the  appellant  on account of these dealings a sum of Rs. 6,321-12-0.  On  that date, the respondent had outstanding for the next clearance, sales  of  25  shares of Tata Deferred  and  350  shares  of Swadeshi  Mills.   On  11-8-1947,  the  appellant   effected

3

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

purchases  of 25 shares of Tata Deferred and 350  shares  of Swadeshi  Mills  to  square the  outstanding  sales  of  the respondent,  and sent the relative contract  notes  therefor Nos.  2438  and 2439 (Exhibit A) to her.  She sent  a  reply repudiating  the contracts on the ground that the  appellant had  not been authorised to close the transactions on  11-8- 1947,  and instructed him to square them on 14-8-1947.   The appellant, however, declined to do so, maintaining that  the transactions had been closed on 11-8-1947 under the 109 860 instructions of the respondent. After some correspondence which it is needless to refer  to, the appellant applied on 21-8-1947 to the Native Share,  and Stock   Brokers  Association,  Bombay  for  arbitration   in pursuance  of a clause in the contract notes, which runs  as follows: "In  event of any dispute arising between you and  me/us  of this transaction the matter shall be referred to arbitration as provided by the Rules and Regulations of the Native Share and Stock Brokers’ Association". The   Association   gave  notice  of  arbitration   to   the respondent, and called upon her to nominate her  arbitrator, to which she replied that the contract notes were void,  and that  in  consequence, no arbitration proceedings  could  be taken thereunder.  The arbitrators, however, fixed a day for the hearing of the dispute, and gave notice thereof to  her, but  she declined to take any part in the  proceedings.   On 10-10-1947 they made an award in which, on the basis of  the purchases  made  by the appellant on  11-8-1947  which  were accepted by them, they gave credit to the respondent for Rs. 1,847, and directed her to pay him the balance of Rs. 4,474- 12-0. The  respondent then filed the application out of which  the present  appeal arises, for setting aside the award  on  the ground,  inter  alia, that the contracts  in  question  were forward  contracts  which were void under section 6  of  the Bombay  Securities Contracts Control Act VIII of 1925,  that consequently  the  arbitration  clause  was  also  void  and inoperative, and that the proceedings before the arbitrators were  accordingly  without  jurisdiction  and  the  award  a nullity.  Section 6 of the Act is as follows: "Every  contract  for the purchase or  sale  of  securities, other  than a ready delivery contract, entered into after  a date  to  be  notified  in this  behalf  by  the  Provincial Government shall be void, unless the same is made subject to and  in  accordance  with the rules  duly  sanctioned  under section  5 and every such contract shall be void unless  the same  is  made  between members or through  a  member  of  a recognised stock- 861 exchange;  and no claim shall be allowed in any Civil  Court for the recovery of any commission, brokerage, fee or reward in respect of any such contract". Section  3(1) defines ’securities’ as including shares,  and therefore,  contracts  for the sale or  purchase  of  shares would  be  void under, section 6, unless they were  made  in accordance  with  the  rules sanctioned  by  the  Provincial Government  under section 5. The appellant sought  to  avoid the  application  of  section  6  on  the  ground  that  the contracts  in question were ’ready delivery contracts’,  and fell outside the operation of that section.  Section 3(4) of Act  VIII  of  1925 defines  ’ready  delivery  contract’  as meaning  "a contract for the purchase or sale of  securities for  performance of which no time is specified and which  is

4

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

to  be performed immediately or within a  reasonable  time", and  there  is an Explanation that "the question what  is  a reasonable  time  is in each particular case a  question  of fact".  The contention of the appellant was  that  contracts Nos. 2438 and 2439 were ready delivery contracts as  defined in  section  3(4),  as no time  was  specified  therein  for performance. The  learned  City Civil Judge, who  heard  the  application agreed with this contention, and holding that the  contracts were not void under section 6 of Act VIII of 1925, dismissed the  application.  The respondent took the matter in  appeal to  the High Court of Bombay, and that was beard by  Chagla, C.J.  and  Tendolkar, J. They were of the opinion  that  the con’ tracts in question were not ready delivery contracts as defined  in section 3(4) of the Act, because though no  time for  performance  was  specified therein,  they  had  to  be performed  within  the  period specified in  the  Rules  and Regulations  of  the Association,  which  were  incorporated therein  by  reference,  and not "immediately  or  within  a reasonable time" as provided in section 3(4), that they were accordingly void under section 6, and that consequently, the arbitration  clause  and the  proceedings  taken  thereunder culminating  in the award were also void.  They  accordingly set  aside  the award as invalid and  without  jurisdiction. Against  this  judgment, the appellant  has  preferred  this appeal 862 on a certificate under article 133(1) (c). It was argued by the learned Attorney-General in support  of the  appeal  that even apart from the question  whether  the contracts  in question were for ready delivery or not,  they would be outside the purview of section 6, because they were not  contracts  for sale and purchase of  securities.   This contention  was not raised in the courts below, and  learned counsel for the respondent objects to its being  entertained for  the  first time in this Court, as  that  would  involve investigation  of  facts, which has not been made.   But  in view of the terms of the contract notes and the admission of the  respondent in her petition, we are of opinion that  the point is open to the appellant, and having heard counsel  on both sides, we think that the appeal should succeed on  that point. The  dispute  between  the  parties is  as  to  whether  the appellant was acting within the scope of his authority  when he  purchased 25 shares of Tata Deferred and 350  shares  of Swadeshi  Mills on 11-8-1947.  If he was acting  within  his authority, then the respondent was entitled only to a credit of  Rs.  1,847 on the basis of the said purchases.’  But  if these purchases were unauthorised, the appellant was  liable to  the respondent in damages.  In either case, the  dispute was one which arose out of the contract of employment of the Appellant  by  the respondent as broker and not out  of  any contract of sale or purchase of securities.  The question of sale or purchase would arise between the respondent and  the seller  or purchaser, as the case may be, with reference  to the  contract  brought  about by  the  appellant.   But  the relationship  between the respondent and the  appellant  was one  of  principal  and agent and not  that  of  seller  and purchaser.    The  contract  of  employment  is   no   doubt connected,  and  intimately,  with sales  and  purchases  of securities;  but  it  is not itself a contract  of  sale  or purchase.  It is collateral to it, and does not become  ipso facto  void, even if the contract of purchase and sale  with which  it is connected is void.  Vide the decision  of  this Court in Kishan Lal and another v. Bhanwar Lal(1) The legis-

5

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

(1)  (1955] 1 S.C.R. 439. 863 lature might, of course, enact that not merely the  contract of  sale or purchase but even contracts  collateral  thereto shall  be  void, in which case the contracts  of  employment with  reference to those contracts would also be void.   But that  is  not  what Act VIII of 1925 has  done.   Section  6 expressly  provides that no claim shall be maintained  in  a civil  court for the recovery of any commission,  brokerage, fee or reward in respect of any contract for the purchase or sale  of  securities.   That is to say, the bar  is  to  the broker claiming remuneration in any form for having  brought about  the contract.  But the contract of employment is  not itself declared void, and a claim for indemnity will not  be within the prohibition.  The question whether contract notes sent by brokers to their constituents are contracts for  the sale and purchase of securities within section 6 of Act VIII of  1925, came up for consideration before the  Bombay  High Court in Promatha Nath v. Batliwalla & Karani (1) and it was held  therein  that they were not themselves  contracts  for sale  or purchase but only intimations by the broker to  the constituent that such contracts had been entered into on his behalf.  We agree with this decision. It  may  be  argued  that  if  the  contract  note  is  only intimation  of  a  sale or purchase on behalf  of  the  con- stituent, then it is not a contract of employment, and  that in  consequence,  there  is  no  agreement  in  writing  for arbitration  as required by the Arbitration Act.  But it  is settled  law that to constitute an arbitration agreement  in writing it is not necessary that it should be signed by  the parties, and that it is sufficient if the terms are  reduced to  writing  and  the agreement of the  parties  thereto  is established.  Though the respondent alleged in her  petition that she had not accepted the contract notes, Exhibit A, she raised  no contention based thereon either before  the  City Civil Judge or before the High Court, and even in this Court the  position  taken up by her counsel was  that  Exhibit  A constituted  the  sole repository of the contracts,  and  as they were void, there was no arbi- (1) I.L.R. [1942] Bom. 655; A.I.R. 1942 Bom. 224. 864 tration clause in force between the parties.  We accordingly hold  that  the  contract notes contained  an  agreement  in writing  to refer disputes arising out of the employment  of the  appellant as broker to arbitration, and that they  fell outside the scope of section 6 of Act VIII of 1925, that the arbitration proceedings are accordingly competent, and  that the  award  made  therein is not open to  objection  on  the ground that Exhibit A is void. It  was next contended for the respondent that the  contract notes were void under Rule 167 of the Native Share and Stock Brokers’  Association,  and that on that  ground  also,  the arbitration  proceedings and the award were void.  Rule  167 so far as it is material is as follows: "167. (a) Members shall render contract notes to non-Members in  respect  of  every bargain made  for  such  non-Member’s account,  stating  the price at which the bargain  has  been made.   Such  contract  notes shall  contain  a  charge  for brokerage  at  rates not less than the scale  prescribed  in Appendix  G  annexed to these Rules, or as modified  by  the provisions  of  rules 168 and 170(b).  Such  contract  notes shall  show  brokerage  separately and shall be  in  Form  A prescribed in Appendix annexed to these Rules.         ............................................ (c)  No  contract  note not in one of the printed  Forms  in

6

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

Appendix H shall be deemed to be valid.         ............................................ (g)  A  contract note referred to in this rule or any  other rule for the time being in force shall be deemed to mean and include a contract and shall have the same significance as a contract". Form A in Appendix H referred to in Rule 167(a) contains two columns,  one showing the rate at which the  securities  are purchased  or  sold  and  the  other,  the  brokerage.   The contract notes sent to the respondent are not in this  form. They  are in accordance with Form A in Appendix A, and  show the rates at which the securities are sold or purchased, the brokerage  not being separately shown.  At the foot  of  the document, there is the following note; 865 "This is net contract.  Brokerage is included in the price". The contention of the respondent is that the contract  notes are  not  in accordance with Form A in Appendix  H,  as  the price  and  brokerage  are not separately  shown,  and  that therefore  they are void under Rule 167(c).  Now,  Rule  167 applies  only  to forward contracts, and the  basis  of  the contention  of  the  respondent  is  that  inasmuch  as  the contract  notes,  Exhibit A, have been held by  the  learned Judges of the High Court not to be ready delivery  contracts but forward contracts, they would be void under Rule 167(c), even if they were not hit by section 6 of Act VIII of  1925. The assumption underlying this argument is that what is  not a  ready delivery contract under the definition  in  section 3(4)  of  Act  VIII of 1925 must necessarily  be  a  forward contract for purposes of Rule 167.  But that is not correct. The definition of a ready delivery contract in section  3(4) is only for the purpose of the Act, and will apply only when the question is whether the contract is void under section 6 of that Act.  But when the question is whether the  contract is void under Rule 167, what has to be seen is whether it is a forward contract as defined or contemplated by the  Rules. The definition in section 3(4) of Act VIII of 1925 would  be wholly irrelevant for determining whether the contract is  a forward  contract for purposes of Rule 167, the decision  of which  question must depend entirely on the construction  of the Rules. The  relevant Rules are Nos. 359 to 363.  Rule 359  provides that  "contracts other than ready delivery  contracts  shall not be made or transacted within or without the ring".  Rule 361  confers on the Board power to specify which  securities shall  be  settled  by the system of  Clearance  Sheets  and which,  by  the  process  of Tickets.   Rules  362  and  363 prescribe the modus operandi to be followed in effecting the settlement.   It  was with reference to  these  rules  which under the contract notes were to be read as part of the con- tract, that the learned Judges held that the contracts  were not ready delivery contracts as defined in sec- 866 tion 3(4) of Act VIII of 1925.  But reading the above  Rules with  Rule  359,  there can be no doubt  that  the  contract notes,  Exhibit  A, would for the purpose of  the  Rules  be ready delivery contracts.  Indeed, the form of the  contract notes,  Exhibit A, is the one provided under the  Rules  for ready  delivery contracts, whereas Form A in Appendix H  is, as  already stated, for forward contracts.  Thus,  contracts which  are regulated by Rules 359 to 363 cannot  be  forward contracts contemplated by Rule 167, and they cannot be  held to  be void under that Rule.  The error in the  argument  of the  respondent  is in mixing up  two  different  provisions enacted  by  two different authorities and reading  the  one

7

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

into the other.  The rules framed by the Association form  a code  complete  in  itself, and any  question  arising  with reference  to  those  rules  must  be  determined  on  their construction,  and it would be a mistake to read  into  them the  statutory provisions enacted in Act VIII of  1925.   In this view, the contract notes, Exhibit A, cannot be held  to be  void  under  rule 167.  In the  result,  we  must  hold, differing  from the learned Judges of the court below,  that the arbitration proceedings are not incompetent and that the award  made  therein  is not void on  the  ground  that  the contracts containing the agreement are void. The  respondent  contested  the validity  of  the  award  on several other grounds.  They were rejected by the City Civil Judge  and  in the view taken by the learned Judges  of  the High Court that the contract notes were void under section 6 of Act VIII of 1925, they did not deal with them.  Now  that we  have  held  that  the contracts  are  not  void,  it  is necessary that the appeal should be heard on those points. We  accordingly set aside the order of the court below,  and direct  that  the  appeal be reheard in  the  light  of  the observations contained herein.  As the appeal succeeds on  a point  not taken in the courts below, the parties will  bear their  own  costs  throughout.  The  costs  of  the  further hearing after remand will be dealt with by the High Court. 867