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PETITIONER: KHARDAH COMPANY LTD.

       Vs.

RESPONDENT: RAYMON & CO. (INDIA) PRIVATE, LTD.

DATE OF JUDGMENT: 04/05/1962

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K. AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.

CITATION:  1962 AIR 1810            1963 SCR  (3) 183  CITATOR INFO :  F          1963 SC  90  (17,18,24)  APL        1964 SC1526  (8)  R          1969 SC   9  (8)  R          1974 SC1579  (6)  D          1985 SC1156  (19,24,49,53)  F          1989 SC 839  (18)

ACT: Forward  Contract-Contract  for  sale  of   goods-Government notification  forbidding forward contracts other  than  non- transferable  specific delivery contracts Validity  of  the contract--Clause providing for arbitration-clause, if  valid even  if  contract  were  invalid-Parties  appearing  before arbitrator--Estoppel--Forward  Contracts  (Regulation)  Act, 1952  (74  of 1952), ss. 2 (c) (f) (i) (m) (n),  15(1),  17, 18(1).

HEADNOTE: On  September 7, 1955, the appellant company entered into  a contract  with the respondents for the purchase  of  certain bales of jute cuttings to be delivered by the respondents in equal  installments  every month in  October,  November  and December,  1955.  Under cl. 3 of the agreement  the  sellers were entitled to receive the price only on their  delivering to the buyers the full set of shipping documents.  Clause  8 conferred  on the sellers certain rights against the  buyers such as the right to resell if the latter refused to  accept the documents.  Clause 14 provided that all disputes arising out of or concerning the contract should be referred to  the arbitration  of  the  Bengal Chamber of  Commerce.   As  the respondents  failed  to  deliver the  goods  as  agreed  the appellants  applied to  the Bengal Chamber of  Commerce  for arbitration.    The   respondents   appeared   before    the arbitrators  and contested the claim, but an award was  made in. favour of the appellant. Thereupon the respondents filed an application in the High Court of Calcutta under s. 33  of the Arbitration Act, 1940, 184 challenging the validity of the award on the ground that the

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contract  dated September 7, 1955, was illegal as it was  in contravention of the notification of the Central  Government dated  October 29, 1953, issued under s. 17 of  the  Forward Contracts  (Regulation)  Act, 1952, which declared  that  no person  shall enter into any forward contract other  than  a nontransferrable specific delivery contract for the sale  or purchase  of raw jute in any form...........  The  appellant pleaded (1) that on the terms of the arbitration clause  the question  whether the contract dated September 7, 1955,  was illegal was one for the arbitrator to decide and that it was not   open  to  the  respondents    to  raise  the   same in proceedings  under s. 33 of the Arbitration Act ; (2 )  that the respondents were estopped from questioning the  validity of  the  award by reason of their having  submitted  to  the jurisdiction of the arbitrators ; and (3) that, in any case, the  contract  was  a  nontransferrable  specific   delivery contract  within  s.  2  (f  )  of  the  Forward   Contracts (Regulation)  Act and was not hit by the notification  dated October 29, 1933. Held,  that  :  (1) the dispute as to the  validity  of  the contract  dated  September 7, 1955, was not  one  which  the arbitrators  were competent to decide under cl. 14 and  that in consequence the respondents were entitled to maintain the application under s. 33 of the Arbitration Act. When an agreement is invalid every part of it including  the clause  as  to arbitration contained therein  must  also  be invalid. Leyman v. Darwins Lid., [1942] A. C. 356, Union of India  v. Kighorilal  Gupta  and  Brothers, [1960] 1  S.  C.  R.  493, Tolaram  v. Birla Jute Manufacturing Company Lid., I. L.  R. [1948] 2 Cal. 17, relied on. (2)the respondents were not estopped by their conduct from questioning the validity of the award. Ex  parte  Wyld, (1861) 30 Law J. Rep. (N.   S.)  Bank.  10, explained. (3)on  the  true construction of the contract  dated  Sep- tember 7, 1955, read with the terms of the import licence in favour  of the appellant, the agreement between the  parties was that the contract was not to be transferred. In construing a contract it would be legitimate to take into account  surrounding  circumstances and, therefore,  on  the whether there was an agreement between the parties 185 that the contract was to be non-transferable, the absence of a specific clause forbidding transfer was not conclusive. Virjee Daya & Co. v. Ramakrishna Rice & Oil Mills, A.  1. R. 1956 Mad.  11O, approved. British  Waggon  Co. v. Lea, (1880) 5 Q. B.  D.  149,  dist- inguished. Accordingly,  the  contract in question was not hit  by  the notification dated October 29, 1953.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 98 and  99 of 1960. Appeal from the judgment and order dated April 16, 1958, and April  11, 1958, of the Calcutta High Court in  Appeal  from Original  Order  and  decree  Nos.  173  and  151  of  1957, respectively. H.N. Sanyal, Additional Solicitor-General of Indin, M. G. Poddar and D. N. Mukherjee, for the appellant. C.B. Aggarwala and S. N. Mukherjee, for the respondent. 1962.  May 4. The Judgment of the Court was delivered by

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VENKATARAMA AIYAR, J.-These are appeals against the judgment of the High Court of Calcutta, setting aside an award of the arbitrators,  which  directed the respondent to pay  to  the appellants   Rs.  41,250  as  compensation  for  breach   of contract,  on the ground that the said contract was in  con- travention of a notification of the Central Government dated October  29, 1953, and was in consequence illegal and  void. The  facts  are  that  the appellants own  a  Jute  Mill  at Calcutta  and carry on the business of manufacture and  sale of Jute.  On September 7, 1955 they entered into a  contract with the respondents who are doing business as 186 dealers  in  jute,  for the purchase of 750  bales  of  Jute cutting ’raw) of Pakistan at Rs. 80 per bale of 400 lbs.  to be  delivered in October, November and December at the  rate of  250  belles  every month.  Clause 14  of  the  agreement provides that all disputes arising out of or concerning  the contract should be referred to the arbitration of the Bengal Chamber of Commerce.  The respondents failed to deliver  the goods  as  agreed whereupon the appellants  applied  to  the Bengal  Chamber  of Commerce for arbitration  in  accordance with  el.  14 of the agreement. The  respondents  appeared before  the  arbitrators,  and contested the  claim  on  the merits.   The  arbitrators made an award in  favour  of  the appellants for Rs. 41,250 with interest, and that was  filed under  s.  14(2) of the Indian Arbitration Act in  the  High Court of Calcutta in its original side and notice was issued to  the  respondents.  Thereupon the  respondents  filed  an application in the High Court, presumably under s. 33 of the arbitration Act, wherein they prayed for a declaration  that the contract dated September 7, 1955, was illegal, as it was in   contravention  of  the  notification  of  the   Central Government  dated October 29, 1953, and that in  consequence proceedings taken thereunder before the Chamber of  Commerce and  the  award in which they resulted were all  void.   The learned   Judge  on  the  original  side  before  whom   the application  came up for hearing dismissed it, and passed  a ’decree  in terms of the award.  Against both this  judgment and  order, the respondents preferred appeals to a  Division Bench  of the High Court, Appeals Nos. 154 and 173 of  1957. They were heard by Chakravartti, C. J., and Lahari, J.,  who hold that the contract dated September 7, 1955, was  illegal as  it  fell  within the  prohibition  of  the  notification aforesaid  and accordingly allowed the appeal and set  aside the award.  The appellants 187 then  applied  for a certificate under Art. 133 (1)  of  the Constitution  and  the same was granted.  This  is  how  the appeals come before us. The  learned Additional Solicitor-General who  appeared  for the appellants urged the following contentions :- (1)On the terms of the arbitration clause the questionwhether the contract dated September 7. 1955, isillegal is  one for the arbitrator to decide and that it was not open to the respondents  to  raise the same in the  present  proceedings under s. 33 of the Arbitration Act, (2)The  respondents  are  estopped  from  questioning  the validity of the award by reason of their having submitted to the jurisdiction of the arbitrators. (3)The  agreement  dated  September 7.  1955,  is  a  non- transferable  specific delivery contract within s.  2(f)  of the Act and it is not hit by the notification dated  October 29, 1953. We now proceed to discuss these questions seriatim : (1)Taking up the first questions, cl, 14 of the  agreement

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which provides for arbitration is as follows :-               "All   the   matters,   questions,   disputes,               differences and/ or claims arising out of and/               or concerning and/ or in connection with  and/               or in consequence of or relating to this  con-               tract including matters relating to  insurance               and  demurrage whether or not the  obligations               of either or both parties under this  contract               be subsisting at the time of such dispute  and               whether  or not this contract has been  termi-               nated or purported to be terminated or com-               188               pleted shall be referred to the arbitration of               the  Bengal Chamber of Commerce  and  Industry               under the rules of its Tribunal of Arbitration               for  the time being in force and according  to               such rules the arbitration shall be  conducted               and any Award made by the said Tribunal  under               the  clause.  shall  be  final,  binding   and               conclusive on the parties." Now  the contention of the appellants is that the clause  is general in its terms and is wide enough to include  dispute as  to the validity of the contract that in consequence  the only  right of the respondents is to agitate this  question before the arbitrators and if the award goes against them to move  the  Court  either to modify it under  s.  15  of  the Arbitration  Act  or to remit it under s. 16 or  to  set  it aside under s. 30 on the grounds mentioned therein and  that the present application for a declaration that the  contract is illegal, and that the arbitration proceedings are without jurisdiction is therefore incompetent and misconceived. it cannot be disputed that the expression "arising out of  " or "concerning" or " in connection with" or "in  consequence of"  or "relating to this contract" occurring in el. 14  are of  sufficient  amplitude  to take in a dispute  as  to  the validity of the agreement dated September 7, 1955 Vide  Ruby General Insurance Co. Ltd. v. Pearey Lal ,Kumar (1) But  the question  is  not whether el. 14 is  all  comprehensive  but whether it could be enforced when the agreement of which  it forms  an  integral part is held to be  illegal.   Logically speaking, it is difficult to conceive how when an  agreement found  to  be bad, any portion of it can held  to  be  good. When  the whole perishes, its parts also must  perish.   ’Ex nihilo  nil  fit’.  On principle therefore it must  be  held that when an 189 agreement is invalid every part of it including the  clause as to arbitration contained therein must also be invalid. That  indeed  is what has been laid down  in  the  decisions which  have been cited before us.  The leading case  on  the subject  is the decision of the House of Lords in Heyman  v. Dacwins Ltd(1).  There the question was whether  repudiation of  a  contract  by  a  party  thereto  had  the  effect  of annulling’ the arbitration clause contained therein.  It was held  that it had not.  It was in this context that the  law as to the circumstances under which an arbitration clause in an   agreement  would  become  unenforceable  came  in   for elaborate  discussion.   Summing up the law on  the  subject Viscount  Simon, L. C. observed: "If the dispute is  whether the contract which contains the clause has ever been entered into  at all, that issue cannot go to arbitration under  the clause,  for the party who denies that he has  ever  entered into the contract is thereby denying that he has ever joined in  the submission.  Similarly, if one party to the  alleged contract  is contending that it is void ab initio  (because,

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for ,example, the making of such a contract is illegal), the arbitration  clause  cannot operate, for on  this  view  the clause  itself also is void.  But, in a situation where  the parties  are  at one in asserting that they entered  into  a binding  contract, but a difference has arisen between  them whether  there has been breach by one side or the other,  or whether circumstances have arisen which have discharged  one or  both parties from further performance, such  differences should  %be  regarded as differences which have  arisen  "in respect  of" or "with regard to" or, "under"  the  contract, and  an  arbitration clause which. uses these.  or  similar, expressions ,should be construed accordingly." (1)  (1942) A.C. 356. 190 Lord Macmillan with whom Lord Russel agreed observed: "If it appears  that the dispute is whether there has ever  been  a binding contract between the parties, such a dispute  cannot be  covered by an arbitration clause in the challenged  con- tract.  If there has never been a contract at all, there has never  been  as part of it an agreement to  arbitrate.   The greater includes the less.  Further, a claim to set aside  a contract on such grounds as fraud, duress or essential error cannot  be  the  subject  matter of  a  reference  under  an arbitration clause in the contract sought to be set aside." in  the  speech  of  Lord Wright  there  are  the  following observations  on which the appellants rely: "Hence,  if  the question  is  whether  the alleged  contract  was  void  for illegality or being voidable was avoided because induced  by fraud or misrepresentation, or on the ground of mistake,  it depends  on the terms of the submission whether the  dispute falls within the arbitrator’s jurisdiction." The argument is that if the arbitration clause is general and unqualified it will  include  a question as to the legality of  a  contract also.   The above observation does lend support to the  view that  if it was a term of the contract that a dispute as  to its  legality could be referred to arbitration, then  it  is valid.   If that is what was meant by Lord Wright  it  maybe difficult  to  reconcile it with the view expressed  in  the passages  already  cited.  But it is to be  noted  that  the noble Lord wound up with the following observation "Finally, I   agree  with  the  general  conclusions  on  the   matter summarised by the Lord Chancellor in the closing  paragraphs of his opinion". The  appellants also rely on the following  observations  in the speech of Lord Porter: "If two parties purports to enter into a contract and a dispute arises whether they have  done so or not, 191 or  whether the alleged contract is binding on them.  I  see no  reason  why  .-hey should not  submit  that  dispute  to arbitration.   Equally I see no reason why, if at  the  time when  they  purport, to make the contract they  foresee  the possibility  of  such  a dispute arising,  they  should  not provide  in  the  contract  itself  for  the  submission  to arbitration  of  a dispute whether the contract  ever  bound them  or continues to do so............ It may require  very clear language to effect this result, and it may be true  to say  that  such  a  contract is  really  collateral  to  the agreement  supposed to have been made, but I do not see  why it should not be done". But these dicta must be read with the following observations in the same speech: "Where the contract itself is repudiated in  the  sense that the original existence  or  its  binding force  is  challenged,  e. g., where it  is  said  that  the parties  never  were ad idem, or where it is said  that  the

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contract  is voidable ab initio (e. g., in cases  of  fraud, misrepresentation or mistake) and that it has been  avoided, the  parties  are not bound by any contract and  escape  the obligation  to  perform  any  of  its  terms  including  the arbitration clause unless the provisions of that clause  are wide enough to include the question of jurisdiction" According to Lord Porter, then; there can be an agreement to refer  a  dispute  as  to the  validity  of  a  contract  to arbitration,  that  where such an agreement is part  of  the contract  which is impugned as invalid, then it can have  no existence apart from it and there can be no reference  based thereon,  but  where  such  an  agreement  is  distinct  and separate  from the impugned contract. a  reference  pursuant thereto  will  be valid and if is possible that  both  these agreements might be contained in one document. 192 The  law  is thus summarised in Halsburys Laws  of  England, Third  Edition,  Vol.  2, p. 24,. par&  56:  The  matter  in question in the legal proceedings which it is sought to stay must    be   within   the   scope   of    the    arbitration agreement............. If, however, the point in dispute  is whether the contract containing the clause was ever  entered into  at  all, or was void ab initio, illegal,  or  obtained (for example) by fraud duress or undue influence, the clause does not apply and a stay will be refused." This question arose incidentally for discussion in the Union of  India  v. Kishorilal Gupta and Brothers(1) where  on  an examination of the authorities, including Heyman v.  Darwins Ltd. (2) this Court held that an arbitration clause embodied in an agreement is an integral part thereof and that it that agreement is non est either because. it was never legally in existence  or  because  it was void  ab  initio.,  then  the arbitration  clause  would  also perish  with  it.   Similar decisions  had been given in Tolaram Nathmull v. Birla  Jute Mfg.    Company   Ltd.(3)   and  Hussain   Kasam   Dada   v. Vijayanagaram Commercial Association(4). Reference  might in this connection be made to s. 33 of  the Arbitration Act which enacts that a party to an  arbitration agreement who desires to challenge the existence or validity of  an arbitration agreement should apply to the  Court  for determination of the question.  This section represents  the law  on the subject as understood in England at the time  of that legislation and as declared later by the House of Lords in  Heyman v. Darwins Ltd. (2).  The scope of s. 33 came  up for  consideration  before this Court in Shiva  Jute  Baling Ltd. v. Hindley & Co.  Ltd. (5).  There a petition had  been filed   under  that  section  praying  inter  alia   for   a declaration that the contract between the parties containing an (1) [1960] 1 S.C.R. 493.   (2) I. L.R. [1948] 2 Cal. 171. (3)) A.I.R. 1945 Mad. 528. 531.  (4) [1960] 1 S.C.R. 569. (5) (1861) 30 Law.  J. Rep.   (N.S.)    Banks. 10. 193 arbitration  clause,  was void ab initio on  the  ground  of uncertainty and that there was in fact no contract owing  to mutual mistake and it was held that these were questions for decision   by  Courts  and  not  by  arbitrators.   We   are accordingly  of  the  opinion  that  the  dispute  that  the contract’  dated September 7, 1955, is illegal and  void  is not one which the arbitrators are competent to decide  under cl.  14 and that inconsequence the respondents are  entitled to  maintain  the  present application under s.  33  of  the Arbitration Act. (2)It  is next contended for the appellants ,that even  if cl.  14  should be held to be inoperative by reason  of  the

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fact that the dispute is one relating to the validity of the contract, the respondents  are estopped from now challenging the  award on that ground, because they appeared before  the arbitrators  and took part in the proceedings  before  them. The  decision in Ex p. Wyld (1) is relied on in  support  of this contention.  In that case a dispute between an assignee in  bankruptcy  and a creditor, Mr. Wyld,  was  referred  to arbitration on the, basis of an agreement in writing between them.  An award having been pronounced against Mr. Wyld,  he disputed  its validity on the ground that the  assignee  had not  obtained the leave of the Court for entering  into  the arbitration.    In  rejecting  this  contention  the   Court observed that under the law the agreement was binding on Mr. Wyld   even  though the leave of the Court was not  obtained and  that  therefore  he  was  not  entitled  to  take  this objection  based on the informality of the submission as  he had  himself  acted on it.  This decision is clearly  of  no assistance  to the appellants because there was a valid  and subsisting  submission  on  which the  jurisdiction  of  the arbitrators  to bear the dispute was complete, and that  was not  affected by the failure of the assignee to  obtain  the requisite (1)  (1861) 30 Law J. Ref. (N.S.) Bankr. 10. 194 leave  because that was a matter between him and the  Court. But  here if the agreement dated September 7, 1955, is  void then  there was no submission which was alive on  which  the arbitrators could act and the proceedings before them  would be  wholly without jurisdiction.  If there had been  another arbitration  agreement apart from and independent of cl.  14 of the contract dated September 7, 1955, it might have  been possible  to sustain the proceedings before the  arbitrators as referable to that agreement.  But none such has been  set up  or proved in the present case.  All that is  alleged  is that  the  respondents acquiesced in the  proceedings.   But what  confers  jurisdiction on the arbitrators to  hear  and decide  a dispute is an arbitration agreement as defined  in s.  2(a) of the Arbitration Act, and where there is no  such agreement,  there is an initial want of  jurisdiction  which cannot  be cured by acquiescence.  It may also be  mentioned that the decision in Ex. p. Wyld (1) has been understood  as an  authority for the position that when one of the  parties to  the submission is under a disability that will not be  a ground on which the other party can dispute the award if  he was  aware of it.  Vide Russel on Arbitration, 16th Edn,  p, 320.   We are therefore Unable to accept the  contention  of Mr.  Sanyal,  that  the respondents are  estopped  by  their conduct from questioning the validity of the award. (3)We may now proceed to consider the question whether the contract  dated  September 7, 1955, is  illegal  as  falling within  the prohibition enacted in the notification  of  the Central  Government  dated  October 29, 1953.   It  will  be convenient  to  set out the  relevant  statutory  provisions bearing  on  this  question.  Section 2(i)  of  the  Forward Contracts   (Regulation)  Act,  1952,  (Act  74   of   1952) hereinafter referred to as ’the Act’ (1)  (1861) 30 Law J. Ref. (N.S.) Bank. 10 .  195 defines  ready  delivery contract’ as  meaning  "a  contract which provides for the delivery of goods and the payment of a price therefore, either immediately or within such  period not  exceeding eleven days after the date of the  contract". ’Forward  contract’  is  defined in s. 2(c)  as  meaning  "a contract  for  the delivery of goods at a  future  date  and ’which  is  not a ready delivery  contract".   Section  2(m)

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defines  specific delivery contract’ as meaning  "a  forward contract which provides for the actual delivery of specific qualities or types of goods during a specified future period at  a  price  fixed thereby or to be  fixed  in  the  manner thereby agreed and in which the names of both the buyer  and the   seller   are   mentioned".    Section   2(f)   defines ’nontransferrable specific delivery contract’ as meaning  "a specific  delivery contract the rights or liabilities  under which or under any delivery order, railway receipt, bill  of lading,  warehouse  receipt or any other document  of  title relating  thereto are not transferable" and finally s.  2(n) defines  transferable specific delivery contract as  meaning "a   specific  delivery  contract  which  is  not   a   non- transferable specific delivery contract". Chapter  IV  of  the  Act  contains  provisions   conferring authority  on  the Central Government  to  prohibit  certain classes  of  forward contracts. ,Section 15(1)  of  the  Act enacts:               "15(1)   The   Central   Government   may   by               notification in the Official Gazette,  declare               this  section to apply to such goods or  class               of goods and in such areas as may be specified               in the notification, and thereupon, subject to               the provisions contained in section 18,  every               forward  contract for the sale or purchase  of               any goods specified in the notification  which               is entered into in the area specified               196               therein  otherwise than between members  of  a               recognised association or through or with  any               such member shall be illegal." Where  a  notification  has been issued under  15(1)  it  is provided in s. 16 that all forward contracts falling  within the  notification shall be deemed to be closed out and  that the  seller shall not be bound to give and the  buyer  shall not be bound to take delivery of the goods". Then comes s. 17 which is as follows:-               "1711).    The  Central  Government  may,   by               notification in the Official Gazette,  declare               that no person shall, save with the permission               of  the  Central Government,  enter  into  any               forward  contract for the sale or purchase  of               any  goods or class of goods specified in  the               notification  and to which the  provisions  of               section  15  have not  been  made  applicable,               except  to  the extent and in the  manner,  if               any, as may be specified in the notification.               (2)All  forward contracts in contravention  of               the provisions of subsection (1) entered  into               after   the   date  of  publication   of   the               notification thereunder shall be illegal.               (3)Where  a  notification has  been  issued               under  subsection (1), the provisions of  sec-               tion  16 shall, in the absence of anything  to               the contrary in the notification, apply to all               forward contracts for the sale or purchase  of               any   goods  specified  in  the   notification               entered  into  on or before the  date  of  the               notification  and  remaining to  be  performed               after the said date as they apply to all  for-               ward contracts for the sale or purchase of any               goods specified in the notification under sec-               tion 15."                197 Section 18(1) provides that these provisions shall not apply

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to non-transferable specific delivery contracts for the sale or purchase of any goods. To  analyse the scheme of the Act; it divides  Contracts  of sale   of  goods  into  two  categories,   ’ready   delivery contracts,  and ’Forward Contracts’.  Forward Contracts  are classified into those which are Specific delivery contracts’ and  those  which are not., Then  again  "specific  delivery contracts’  are divided into transferable specific  delivery contracts’    and   non-transferable    specific    delivery contracts.’ Section 18(1) exempts from the operation of  the Act "non-transferable specific delivery contracts’.  The net result  of  these provisions is that all  forward  contracts except  those which are non-transferable  specific  delivery contracts  can  be declared illegal by  notification  issued under the Act. Such a notification was issued by the Central Government  in exercise  of  the powers conferred by s. 17 of the  Act,  on October 29, 1953.  It is as follows :-               "No.  2(24) Jute/53-In exercise of the  powers               conferred   by  section  17  of  the   Forward               Contracts  (Regulation)  Act, 1952  (LXXIV  of               1952), the Central Government hereby  declares               that  no person shall enter into  any  forward               contract other than a nontransferable specific               delivery contract for the sale or purchase  of               raw jute in any form, except to the extent and               in the manner specified below, that is to say:               (1)all  forward  contracts,  other  than  non-               transferable  specific delivery contracts  for               the sale or purchase of raw jute entered  into               before  the  date  of  this  notification  and               repaining to be Performed after the said date               198               shall  be deemed to be closed out at the  rate               prevailing  at the time at which  the  Forward               Market closed on the said date:               (2)all   differences   arising  out   of   any               contracts so deemed to be closed out shall  be               payable on the basis of the rate specified  in               clause (1) of this notification and the seller               shall not be bound to give and the buyer shall               not be bound to take delivery of raw jute." The  contract with which we are concerned in  these  appeals was entered into on September 7, 1955, when the notification aforesaid was in force, and so it would be hit by it, unless it is a non-transferable specific delivery contract and  the point  for  decision  is whether it is that.   There  is  no dispute  between the parties that it is a specific  delivery contract.  It is between named buyers and sellers the  goods are specified, as also the period during which they have  to be actually delivered and their price is fixed.  What is  in controversy   is   whether  it  is  transferable   or   non- transferable.  There was considerable argument before us  on the question as to assignability of a contract.  The law  of the  subject is well settled and might be stated  in  simple terms.  An assignment of a contract might result by transfer either of the rights or of the obligations thereunder.   But there  is  a well-recognised distinction between  these  two classes  of  assignments.   As a rule  obligations  under  a contract  cannot be assigned except with the consent of  the promisee,  and  when such consent is given, it is  really  a novation  resulting in substitution of liabilities.  On  the other hand rights under a contract are assignable unless the contract is personal in its nature the rights are  incapable of  assignment  either under the law or under  an  agreement

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between the parties.  199 In  the light of the principles stated above, we  shall  now consider  whether the contract dated September, 7, 1955,  is or  is  not transferable.  As it is only a benefit  under  a contract that can be assigned, the discussion really centres round two questions, are the buyers entitled to assign their right  to  got the goods on payment of price ? And  are  the sellers entitled to assign their right to receive the  price on delivery of the goods ? On the question as to the  rights of the buyers to assign their right to the goods, the matter is clear beyond all doubts, The licence which authorises the appellants  to  import  the goods from  East  Pakistan  also prohibits  them expressly from assigning the same.  In  this connection it should be noted that, owing to the  exigencies of  Foreign  Exchange,  there have been  in  force,  at  all material times, restrictions on import of goods.  The nature of  these  restrictions  and the  policy  behind  them  were examined  by  this  Court quite recently in  Daya  v.  Joint Controller of  imports and Exports (1) and it is unnecessary to repeat them.  It is sufficient for the present purpose to state  that the issue of import licences by  the  Government was  restricted  to  persons who had  been  engaged  in  the business of import during a specified period and there  were also limitations on the extent to which they could import. Manufacture  of jute occupies the pride of place  among  the industries  of  West  Bengal.  Raw  jute  required  for  the business  is  largely imported from East Pakistan,  and  for that purpose import licences were being granted from time to time,  to  manufactures of jute.  During the period  of  the contract with which we are concerned the appellants held two import  licences  from  the Government of India  (1)  No.  A 062290/52 and (2) A 063733/52.  The licence No. A 062291)/52 which is in the standard. (1) (1963) 2 S.C.R. 73. 200 form  is.  so  far as it is material for  the  present  dis- cussion, as follows:- "Import Trade Control. Office of the Joint Chief Controller of Imports, Calcutta. Licence  No. A 062290152/A.U./C.C.I/C. For Exchange  Control purposes only.    Class of Importer.   Actual User or Contract.  (Valid at any Indian Port). (Not  transferable except under a letter of  authority  from the  authority  who issued the licences or from  any  Import Trade  Controller).   Messrs.  Khardah Co. Ltd. of  7.  Wel- lesley Place, Calcutta are hereby authorised to import  the goods of which particulars are given below :- 1.   Country from which consigned                                         .... Pakistan 2.   Country of origin                ....    " 3.   Description of goodsRaw Jute      .... Raw Jute 4.   Serial No. and part of the                I.T.C. Schedule          ... 174-IV 5,   Quantity                        .... 50,000 Mds.                                       ..(Fifty thou-                                     ....sant                                           ma-           ... unds only). This  licence  is issued subject to the condition  that  the goods will be utilised only for consumption as raw  material or  accessories in the licence bolder’s factory and that  no

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portion thereof will be hold to any party." 201 It will be noticed that the licence is non-transferable  and that further the goods to be imported are not to be sold  to any party but to be utilised for manufacture in the  factory of the licencee.  In view of the terms of the licence  there can  be  no question of assignment of the  contract  by  the buyers.  That is not disputed. Turning next to the sellers, can they assign their right  to the price on delivery of the goods ?  The learned Judges  in the  Court  below held that they could,  because  there  was noting  personal in the contract, and nothing in  its  terms which barred the right to assign a benefit which a party had under   the   general  law.   The  appellants   assail   the correctness of this decision.  They contend the terms of the contract  must be construed in the light of the  surrounding circumstances,  and  especially of the import  licence,  and that  if that is done, the pro.per conclusion to come to  is that  the  agreement is not transferable.   This  contention must now be examined. The  appellants sought, in the first instance, to  establish on  the  basis of clauses 12 and 14 that  the  agreement  is personal in its character, and is therefore not  assignable. Now  the contract in question is one for the sale of  goods, and ordinary there can be nothing personal about it.  It  is of no consequence to the buyer as to who delivers the goods. What matters to him is that the goods delivered should be in accordance  with the specifications.  But it is argued  that the status of the parties was a determinative factor in  the making  of the agreement, and that is sought to  be  deduced from  el. 12 of the contract.  That clause provides that  if either  or both the parties to the contract are  members  of the  Indian Jute Mills Association and if either of them  is placed  in  the  disapproved list of  Association  then  the contract shall be deemed to 202 have  been  broken by that party.  That shows, it  is  said, that  the  contract  was entered into on the  faith  of  the status  of  the  parties  as  members  of  the  Jute   Mills Association.  But it is clear from the wording of the clause that  the  parties to the contract need not  necessarily  be members of the Association and that being so, the element of status  does  not enter into it.  Clause 14,  Which  is  the arbitration clause, is also relied on as an indication  that the  contract is personal in its character and incapable  of assignment  on that ground.  But it is settled law  that  an arbitration  clause does not take away the right of a  party to  a contract to assign it if it is  otherwise  assignable. Vide  Shayler  v. Woolf (1) and Russel on  Arbitation,  16th Edition, p. 65. It is also argued that the rights conferred on the  ’sellers under el. 8 are incapable of assignment in law, and that  is an  indication that the rights under the agreement  are  not transferable.   Clause  8  confers on  the  sellers  certain rights  against buyers, such as the rights to resell and  so forth, when the latter refuse to accept the documents.  What is  said is that these rights cannot be assigned in  law  as they are really claims founded on breach of contract by  the buyers.  That undoubtedly is so, but that does not  conclude the  question.  There is in law a clear distinction  between assignment  of  rights under a contract by a party  who  has performed  his obligations thereunder, and assignment  of  a claim for compensation which one party has against the other for  breach  of contract.  The letter is a  mere  claim  for damages  which  cannot be assigned in law, the former  is  a

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benefit under an agreement, which is capable of  assignment. The fact therefore that the rights under el. 8 are incapable of  assignment does not stand in the way of the  respondents assigning  their  rights to receive the ice after  they  had performed their obligations.  Pr (1)  [1946] 2 All. E. R. 54. 203 That  brings us on to cl. 3 on which the appellants  mainly. Under  that clause the sellers are entitled to  receive  the price only on their delivering to the buyers the full set of shipping  documents.   Now  the  argument  is  that  as  the delivery  of documents and payment of cash are to be  simul- taneous,  it  is a case of benefit under  a  contract  being burdened  with  a  liability, and that  such  a  benefit  is incapable  of assignment under the law.  The learned  Judges in  the Court below took the view that there was nothing  in this clause which prevented the seller from transferring the documents  to a third party authorising him to deliver  them to the buyers, and then to receive the price from them,  and they further observed.  "Although in presenting the shipping documents  the  transferee from the seller may  act  as  his agent, he will not be an agent in receiving payment from the buyer,  because  the right to receive the payment  has  been transferred to him and has become his own right". The  respondents maintain that that is the correct  view  to take of the rights of the parties under this clause and rely on the statements of law in Halsbury’s Laws of England,  and the  decision British Waggon Co. v. Lea (1).  In  Halsbury’s Laws of England, 3rd Edn., Vol. 8, p. 258, para 451, the law is  thus  stated : "There is, however, no objection  to  the substituted performance by a third person of the duties of a party to the contract where the duties are disconnected from the  skill, character, or other personal  qualifications  of the party to the contract. ID such a circumstance,  however, the  liability  of  the original contracting  party  is  not discharged, and the only effect is that the other party  may be  able to look to the third party for the  performance  of the  contractual  obligations in addition  to  the  original contracting  party".   In British Waggon Co. v.  leg(1)  the facts (1)  (1880) 5 Q.B.D. 149, 154. 204 were  that a company called the Parkgate Waggon Company  had hired  waggons to the defendant on the terms that he  should pay rent for their use, and that the Company should  execute the necessary, repairs for them.  The company then  assigned its rights under the contract to another company called  the British  Company, subject to the obligation to  execute  the repairs.  In accordance with his agreement the assignee  did execute   the  repairs.   Thereafter  Parkgate  Waggon   Co, demanded rent from the defendant, who resisted the claim  on the  ground  that  the  Company  had  disabled  itself  from performing the contract, by reason of assignment to which he had not consented.  In overruling this contention the  Court observed that as the work to be done under the contract  did not  require  personal  skill Or  confidence,  the  Parkgate Waggon  Company  could get it done by any person,  and  that would be sufficient performance.  This decision would be  in point if the respondents had arranged to deliver the jute to the appellants through another person, and then claimed  the price,  and  that  claim was disputed.  But  it  is  not  an authority  on the question which we have to decide,  whether the assignment of the benefit under the contract burdened as it is with an obligation would itself be valid.  It is  true that the Court observed in passing "That a debt accruing due

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under  a contract can, since the passing of  the  Judicature Acts, be assigned at law as well as equity, cannot since the decision  in  Brice v. Bannister(1) be  disputed".   But  it should   be  noted  that  both  the  companies  figured   is plaintiffs,  and therefore it is not possible to read  chose observation  as a decision that an assignment of  a  benefit burdened with an obligation is valid. It  was argued for the respondents that it would  have  been open to them to first obtain the requisite certificate  from the Dank in East Pakistan (1)  (1878) 3 Q.B.D. 560. 205 then  deliver  it to the appellants, and then  assign  their right to the price.  But the question is not what could have been  done by a seller in a forward contract generally,  but what  was  in  fact  contemplated by  the  parties  to  this contract  under  el.  3, The provisions  that  the  shipping documents  in Pakistan should be taken in the name  of’  the buyer that the sellers should deliver them to the buyers and receive the price, and that the goods should be delivered at the Mills of the buyers, strongly suggest that the intention of  the parties was, that neither of them should assign  the contract. Whatever doubts one might have as to the true import of  cl, 3-it   may  be  conceded,  that  it  lends  itself  to   the construction  put on it by the learned Judges in  the  Court below,  the position becomes unmistakably clear when  it  is construed  in the light of the import licence in  favour  of the  appellants.  It has been already mentioned that  it  is this which authorises the appellants to import raw jute from East Pakistan.  It is statedly not transferable, and further the  goods  imported  thereunder are to  be  used  only  for consumption in the Mills of the appellants.  It is contended for  the  respondents  that they are  not  parties  to  this licence  and  that  their rights under the  general  law  to assign benefits under the contract remain unaffected by  it. This is to take too narrow a view of the true position.  Far from  being strangers to the licence, the  evidence  clearly establishes  that they are very intimately  associated  with it.   On  September  26, 1955, acting under  licence  No,  A 062290/52 the appellants wrote to the Joint Chief Controller of  Imports  and Exports, Government of India, to  "issue  a letter  of authority in favour of sellers Messrs.  Raymon  & Company  (India) Ltd., for 2,500 maunds jute cuttings to  be imported  from  Narayanganj, (East  Pakistan),  against  the above (licence)." 206 The  letter of authority was received by the  appellants  on September  29, 1956, and they sent it on to the  respondents with the following letter "Dear Sirs,                      Contract No. 2306 We  are  sending.  here with the Exchange  Control  Copy  of Letter of Authority for 1250 Mds.  Jute cuttings against the above." Contract No. 2306 referred to in this letter is the contract dated September 7, 1955, involved in this dispute.  It is on the   strength  of  this  letter  of  authority   that   the respondents  opened a letter of credit with a Bank  in  East Pakistan   and  the  goods  were  imported.   We  have   not overlooked  the  fact  that  while  the  contract  is  dated September 7, 1955, the licence is dated September 22,  1955, and  the  letter  of authority to the  respondents  is  even later, and it might strike one as an anachronism to read the licence and the letter of authority into the contract.   But

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it  should be remembered that the licences are  in  standard form and are renewed from time to time except as to  details concerning the imports, and the course of business  followed in  the  jute market was throughout in conformity  with  the conditions  laid  down. in the licence and was of  the  same pattern.   Now  the  agreement provides  that  the  shipping documents  in  Pakistan are to be taken in the name  of  the buyers  that the sellers are "to open letter of credit"  and that  the  goods are to be delivered ,at  the  buyer’s  Mill siding".   We  have  no doubt that  these  terms  have  been inserted  with a view to give effect to the  conditions  on which licences are granted and that it was the understanding of  both  the sellers and buyers that the rights  under  the contract were not to be transferred. 207 But it is argued for the respondents that unless there is in the contract itself a specific clause prohibiting  transfer, the  plea  that it is not transferable is not  open  to  the appellants  and that evidence aliunde is not  admissible  to establish   it  and  the  decision  in  Seetharamaswami   v. Bhagwathi Oil Company(1), Hanumanthiah v. Thimanthiah(2) and Hussain  Kasam Dada v. Vijayanagaram Comm.  Asson.  (3)  are relied on in support of this position.  We agree that when a contract  has been reduced to writing we must look  only  to that  writing  for ascertaining the terms of  the  agreement between the parties but it does not follow from this that it is  only what is set out expressly and in so many  words  in the  document  that can constitute a term  of  the  contract between  the parties.  If on a reading of the document as  a whole, it can fairly be deduced from the words actually used therein  that the parties had agreed on a  particular  term, there is nothing in law which prevents them from setting  up that  term.   The terms of a contract can  be  expressed  or implied from what has been expressed.  It is in the ultimate analysis  a question of construction of the  contract.   And again  it is well established that in construing a  contract it  would  be legitimate to take  into  account  surrounding circumstances.  Therefore on the question whether there  was an agreement between the parties that the contract was to be non-transferable,   the   absence  of  a   specific   clause forbidding transfer is not conclusive.  What has to be  seen is  whether it could be held on a reasonable  interpretation of  the  contract,  aided  by  such  considerations  as  can legitimately be taken into account that the agreement of the parties was that it was not to be transferred.  When once  a conclusion is reached that such was the understanding of the parties, there is nothing in law which prevents effect  from being given to it.  That was the view (1) [1951] 1 M.L.J. 147.  (2) A.I.R. 1954 Mod. 87. (3)  A.I.R. 1958 Mad. 528, 531. 208 taken  in  Virjee  Daya  & Co. v.  Ramakrishna  Rice  &  oil Mills(1), and that in our opinion is correct. It  remains  to deal with one other question  on  which  the parties have been at issue.  It turns on a consideration  of s.  2(f) of the Act.  A non-transferable  specific  delivery contract  is  defined  in  s. 2(f),  omitting  what  is  not material,  as  a specific delivery contract  the  rights  or liabilities  under  which  are not  transferable.   Now  the contention  of  the  appellants is that  as  admittedly  the liabilities under the contract are not transferable it is  a non-transferable  contract  within s. 2(f).   But  the  res- pondents argue that on that construction no forward contract will  be hit by the notification because  liabilities  under the   contract   can  never  be  transferred  and   so   the

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notification would become futile.  They accordingly  contend that  word  or’  should  be read as an&  and  that  on  that construction  unless both the rights and  liabilities  under the   contract  are  non-transferable  it  is  not  a   non- transferable contract as defined in a. 2(f).  The appellants urge  that  on this construction no contract would  be  non- transferable  as  rights  under a  contract  can  always  be transferred  unless it is personal in its character and  the section would become practically useless.  The intention  of the  legislature as expressed in the section is, it must  be admitted, clouded in obscurity and uncertainty.  But in  the view  we  have  taken, that the contract  is  on  its  terms properly construed, non-transferable, it becomes unnecessary to  decide  between the arrival contentions as to  the  true import of s. 2(f). In  the  result the appeals are allowed with costs  one  set throughout and one hearing fee.                Appeals allowed. (1)  A.I.R. 1956 Mod. 110. 209