27 February 1964
Supreme Court


Case number: Appeal (civil) 73 of 1961






DATE OF JUDGMENT: 27/02/1964


CITATION:  1961 AIR 1285            1961 SCR  (3)1020  CITATOR INFO :  E          1979 SC1457  (4)  F          1985 SC1156  (18)

ACT: Arbitration-Contract   for  Purchase  of   African   cotton- Provision  for  arbitration  under  statutory  bye-laws   on failure-Application  in  court  for  filing  of  arbitration agreement-Power   of   Court-Validity   of   contract-Indian Arbitration  Act,  1940  (10 of 1940),  ss.  20,  46-Foreign Exchange Regulation Act, 1947 (7 of 1947), SS. 5, 21Bye-laws of East India Cotton Association Ltd., Bombay-Bye law 48A.

HEADNOTE: The appellant entered into an agreement with the  respondent to  purchase African raw cotton.  The agreement  included  a clause  that  the contract would be subject to the  "  usual Force  Majeure clause ", the Bye-laws of East  India  Cotton Association  Ltd., Bombay, except bye-law 35, the said  Bye- laws having statutory force, and to the jurisdiction of  the Bombay High Court.  Clause 6 of the agreement provided  that the buyers were to obtain import licence from the Government of India, failing which the seller would be entitled  either to  carry over the goods at the cost of the buyers  or  call upon  them to take immediate delivery on payment in  British East  Africa,  and in default to sell the goods  in  British East  Africa  and  claim the deficit,  if  any  between  the contractual price and the price obtained on re-sale.  Clause 7  further provided that notwithstanding the  import  policy followed by the Government of India in respect of the import of the contracted goods, the buyers would be bound to obtain the  necessary import licences and communicate  the  numbers thereof to the sellers on specified dates, failing which cl. 6  would operate.  The buyers did not perform  the  contract and  the sellers after notice to them re-sold the goods  and thereafter  claimed the deficit which the,buyers refused  to pay.   The  sellers invoked the arbitration clause  and  the rules  contained in bye-law 38A of the Bye-laws  and  others following  it, which conferred on the Chairman of the  Board of Directors of the East India Cotton Association Ltd.,  the power  of  selecting  the  arbitrator  or  arbitrators,  and applied  to  the  High  Court under  s.  20  of  the  Indian



Arbitration  Act for filing the agreement and referring  the dispute  to arbitration.  The buyers resisted and the  trial judge  dismissed  the application, but the Court  of  appeal reversed  that  decision.   It was urged in  this  Court  on behalf  of  the buyers that (1) cls. 6  and  7  contemplated acquisition  of  property  or Exchange in  Africa  and  thus involved a breach of S. 5 of the Foreign Exchange Regulation Act, since no general or special exemption had been  granted thereunder  by the Reserve Bank, (2) that the  expression  " subject  to the usual Force Majeure clause " was  vague  and uncertain  and  rendered the agreement void,  (3)  that  the application  of  bye-law 48A et seq left no  powers  in  the Court to act under sub-ss. (1) and (4) of S. 20n 1021 of the Arbitration Act and the section was thus inapplicable and  (4) that the law applicable to the case was the law  of British East Africa and not that of India. Held, that the contentions must fail. The  provisions  of  sub-ss. (2) and (3) of  s.  21  of  the Foreign Exchange Regulation Act, properly construed, left no manner  of doubt that they contemplated matters  which  were within the prohibition of S. 5 of the Act and had the effect of  engrafting  on the agreement of parties a term  that  it would  be for the decreeholder before he could  enforce  the decree or order of the court to obtain the permission of the Reserve  Bank  and were thus designed to  prevent  the  non- performance of the contract under a cover of illegality. The  contract  involved  no actual or  contingent  right  to acquisition of property abroad, and even assuming it did, it was  saved  by s. 21 of the Act subject to  its  conditions. The agreement was thus enforceable. Nor  was  the contract void for uncertainty.  It  was  clear from judicial decisions that a reference to "force majeure " means   the  saving  of  the  performing  party   from   the consequence of factors beyond his control.  The condition in respect  of  "force majeure " did not, therefore"  make  the contract vague.  Further, the use of the word " usual " made it  clear that the clause could be made certain by  evidence and so it was protected by S. 29 of the Contract Act. Lebeaupin v. CriSpin, [1920] 2 K.B     714, referred to. British Industries v. Patley Pressing, [1953] 1 All E.R.  94 and  Scammell (G) and Nephew Ltd. v. Ouston (H.  C.  and  J. G.) [1941] A.C. 251, distinguished. Bishop  & Baxter Ld. v. Anglo-Eastern Trading  &  Industrial Co.   Ld., [1944] I.K.B. 12, Shamrock S. S. Co.  v.  Storey, (1899) 5 Corn.  Cas. 21, Hillas & Co. v. Arcos Ltd.,  [1932] All E.R. 494 and Adamastos Shipping Co. Ltd. v.  Anglo-Saxon Petroleum Co. Ltd., L,959) A.C. 133, relied on. Although  by s. 46 of the Arbitration Act, the Bye-laws,  if inconsistent  with the provisions of the Act, must  prevail, it  was not correct to say that their application  made  the Courtfunctus officio under s. 20 of the Act.  It must not be overlooked that although the present was a case of statutory arbitration  governed by its own rules, the court  under  S. 20(4) of the Arbitration Act had   two distinct powers,  (1) of judicially considering whether or not     the arbitration agreement should be filed in court and (2)   whether   there should  be  a  reference to the  arbitrator  or  arbitrators appointed  by the parties or selected by it.  Since  in  the instant  case the parties had by their  agreement  empowered the  Chairman  of the Board of Directors of the  East  India Cotton  Association,  Ltd.,  to  select  the  arbitrator  or arbitrators, the court could send the agreement to him to be dealt with under the pro, cedure laid by the said Bye-laws. 1022



Whether the law of the country where the contract is made or of  the country where it is to be performed should apply  is sometimes  a  matter  of  presumption.   But  the   declared intention of the parties overrides such presumption.   Where there is no such declaration, the intention may be  inferred from  the terms and nature of the contract and  the  general circumstances of the case. In  the instant case, since the parties agreed that in  case of dispute the Bombay High Court would have jurisdiction and the arbitration clause indicated arbitration in India, there could be no doubt that the Indian law was to apply. N.   V.  Kwick Who Tong v. James Finlay & Co.,  [1927]  A.C. 604,  Hamlyn & Co. v. Tallisker Distillery, [1894] A.C.  202 and Spurrier v. La Cloche, [1902] A.C. 446 (P.C.),  referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 73 of 1961. Appeal  from the judgment and order dated January 23,  1961, of the Bombay High Court, in Appeal No. 5 of 1960. C.   K.  Daphtary,  Solicitor-General of  India,  Purshottam Tricumdas, F. S. Nariman, Suresh D. Parekh and I. N. Shroff, for the appellants.  M.  K. Nambiar, K. S. Cooper, Anil Dewan, RaMesh A. Shroff, S.  N.  Andley, J. B. Dadachanji, Rameshwar Nath and  P.  L. Vohra, for the respondents. 1961.  February 27.  The Judgment of the Court was delivered by HIDAYATULLAH,  J.-This  is an appeal (with  certificate)  by Messrs.   Dhanrajamal  Gobindram against a judgment  of  the Divisional  Bench  of the High Court of Bombay, by  which  a petition under s. 20 of the Indian Arbitration Act was  held to  be  maintainable and the decision of the  learned  Judge (Original  Side)  who  held otherwise,  was  reversed.   The respondents are Messrs.  Shamji Kalidas & Co. (a  registered firm), who were the petitioners in the High Court. The  facts of the case are as follows: On October 24,  1957, Messrs.   Dhanrajamal  Gobindram  (referred  to  as  buyers, hereafter)  entered into an agreement with  Messrs.   Shamji Kalidas  &  Co.  (referred to as  sellers,  hereafter),  for purchase  of 500 bales of African raw cotton.  The  contract was in the form of a letter 1023 written  by  the sellers and confirmed by the  buyers.   The material   portions   of  the  letter,   which   bears   No. SK/Bom/13/2014  and  was stamped as an  agreement,’  are  as follows:               "We  confirm  having sold to you  African  raw               cotton  on the following terms and  conditions               subject to the usual Force Majeure Clause:                Description:      ARBP 52 F. A. Q. Crop/58.                Quality   :       500 (Five Hundred) bales.                Price     :    at Rs. 1,401 nett per candy                                CIF Bombay.               Payment    :    Against shipping documents in                               Bombay.  Packing   :    420  lbs.  approximately   per               bale.  Shipment :          February/March 1958.  Remarks:  The terms and conditions on the               reverse  form  part  of  the  contract.   This               contract  is subject to the Bye-laws  of  East               India Cotton Association, Ltd., Bombay,  other



             than the bye-law 35 for arbitration on Quality               in case of East African cotton.               Terms and Conditions.               1.    The  shipment  is subject to  any  cause               beyond seller’s or seller’s shipper’s  control               and   is  also  subject  to  availability   of               freight.               5.    This   contract   is  subject   to   the               jurisdiction of the High Court of Bombay.               6.    It  will  be the duty of the  buyers  to               obtain  the import licence and to  communicate               the number thereof to the sellers  immediately               on  the same being obtained but in any  event,               not later than 20th February, 1958, and in the               event  of  their  failure to  do  so  for  any               reasons  whatsoever including the reason  that               the  Government  of India may  not  allow  the               imports  of the contracted goods, the  sellers               shall  be entitled at their discretion  either               to  carry over the goods, in which  event  the               buyers shall pay to the seller all carry  over               charges in addition to the contracted price or               to  call  upon  the  buyers  to  pay  for  the               contracted  goods and take immediate  delivery               thereof in.  British East Africa and upon               1024               the  buyers  failing  to do so,  to  sell  the               contracted goods at Kampala or Mombasa at  the               rates  prevalent there in convenient lots  and               as and when it may be practicable to do so  at               the  risk  and account of the  buyers  and  to               claim from them any deficit that arise between               the contracted price and such resale price and               also all expense incidental thereto.               7.    Even  if  the Government  of  India  may               announce  the import policy of the  contracted               goods  in such manner that only the  consumers               would  be entitled to obtain the licences,  it               will  be  the duty of the buyers to  see  that               necessary  import licences for the  contracted               goods  are obtained in the consumers’ name  or               in the joint names of themselves and those  of               the consumers the intention being that in  all               eventualities it is the duty of the buyers  to               obtain  licences under any policy that may  be               followed  by the Government of India  for  the               import   of  the  contracted  goods   and   to               communicate the number thereof to the  sellers               within  the time as specified hereinabove  and               on  the  buyer’s  failure to  do  so  all  the               eventualities  contemplated  under  clause   6               shall operate."               By  a  letter  dated November  30,  1957,  the               contract  was later amended by the parties  as               follows :               "  With  reference  to  the  above   mentioned               contracts   we   hereby   confirm   that,   if               necessary, we shall carry over the  contracted               goods for two months, namely, March and  April               and you will pay as the carry over charges               for the same.  The interest payable under such               carry  over  charges  will  be  at  the   rate               prevalent in Mombasa. The other terms and conditions remain unaltered..." The  contract was not performed.  The sellers wrote as  many



as  five  letters between March 1, 1958, and May  26,  1958, before  they received a reply from the buyers dated June  3, 1958.   By  that time, the sellers had carried  forward  the contract,  and  also  invoked their right  of  resale  after giving  notice, and claimed Rs. 34,103. 15 nP. for  which  a debit  note had been issued.  This note was returned by  the buyers  with  a  letter of June 3, 1958,  stating  that  the contract was 1025 void and/or illegal", that they were not obliged to  perform it,  that there was no right of any sale on their.,  account and/or  on their behalf, and that the alleged" sale was  not binding upon them. [Ex.  " D " (Colly) No. 6.] The  sellers  then  invoked the arbitration  clause  of  the agreement and Bye-law 38-A of the Bye-laws of the East India Cotton Association, Ltd., Bombay, and moved the Bombay  High Court,  on  the  Original Side, under s. 20  of  the  Indian Arbitration  Act, requesting that the agreement be filed  in Court  and the dispute referred to arbitration.  The  buyers appeared,  and resisted the petition on grounds  which  they set  forth in affidavits filed from time to time.  By  their first  affidavit dated July 31, 1958, the  buyers  contended that  cls.  6  and 7, quoted above, were  unlawful,  as  the liability  created under them amounted to a contravention  " of  the  import  policy of Government of  India  "  and  the Foreign  Exchange Regulation Act, 1947, and the  Rules  made thereunder.  They contended that, in view of the  invalidity of  the contract as a whole, the arbitration clause  in  the agreement was not binding, and that the agreement could  not be  filed.   In  the second affidavit  which  was  filed  on February  4,  1959, they added the reason that the  words  " subject  to the usual Force Majeure Clause " were vague  and uncertain,  and made the contract’ void ab initio, as  there was  no  consensus  ad  item  between  the  parties.    They contended  that the con. tract being void,  the  arbitration clause  was  also void.  By yet another affidavit  filed  on February  27,  1959,  they averred  that  the  letter  dated November  30, 1957, was void, being in contravention of  the Import Trade Control Act and the Foreign Exchange Regulation Act  and the Rules made under the two Acts, inasmuch as  the consideration  was  one forbidden by law and was  likely  to defeat  the  provisions of law.  They also stated  that  the words " if necessary " in that letter rendered the  contract void ab initio for vagueness and uncertainty. The case was heard by K. T. Desai, J. (as he then war,).  On March 3, 1959, the learned Judge dismissed 1026 the  petition  as not maintainable on the ground  that  ,the dispute  was about the legality or validity of the  contract including  the agreement about arbitration, and that such  a dispute could only be considered under ss. 32 and 33 of  the Arbitration Act by the Court and not by the arbitrator in  a reference  under s. 20 of the Act.  He declined to  consider the question under the former sections, because the petition had not asked for that relief, observing that if by a proper petition  the  question were raised, it  would  be  decided. Against  the order of the learned Judge (0.  S.), an  appeal was  filed  by  the  sellers.   This  appeal  was  heard  by Chainani, C. J. and S. T. Desai, J. on April 28, 1959.   The learned Judges held that a claim was made by the sellers and was  denied  by the buyers; that there was  thus  a  dispute arising out of or in relation to a contract as  contemplated by Bye-law 38-A; that in showing cause against the  petition under  s. 20, the buyers had averred that the  contract  was illegal and void; and that such a question could be  decided



by  the  Court  before making the  reference.   The  learned Judges  pointed out that a petition under ss. 32 and  33  of the  Indian  Arbitration Act questioning  the  existence  or validity of an arbitration agreement was not to be  expected from one making a claim under a contract, that the plea  was always  likely to be raised by one resisting  the  petition, and that when such a plea was raised, the Court must  decide it,  even though the proceedings be under s. 20 of  the  Act for  making a reference.  The case was, therefore,  remanded with the following direction: "  As the respondents have challenged the validity  of  this agreement,  the  Court  will have to  decide  this  question before passing further orders in the matter.  Accordingly we set  aside  the  order passed by Mr. Justice  K.  T.  Desai, dismissing the petition filed by the petitioners, and remand the  matter to the trial court for deciding the  objections, raised by the respondent under sub-section (3) of section 20 of  the  Act, to the arbitration agreement  being  filed  in Court,  and then disposing of the matter in accordance  with law." 1027 When the case went back for retrial, the buyers filed  their fourth affidavit on November 16, 1959.  They stated in  that affidavit  that Bye-law 38-A was a statutory Bye-law of  the East  India Cotton Association, Ltd., Bombay,  a  recognised Institution under the Forward Contracts Regulation Act,  No. 74  of 1952, and that s. 46 of the Arbitration Act  was  ap- plicable.   They contended that inasmuch as the Bye-laws  of the    Association   prescribed   a   different    machinery inconsistent with and repugnant to s. 20 of the  Arbitration Act,  the  latter  section was inapplicable,  and  that  the petition  was incompetent.  By his order dated  November  26 and 27,1959, K. T. Desai, J. hold that the petition did  not disclose sufficient materials, and that the sellers were not entitled  to  have the agreement of reference filed,  or  to have  an order of reference made.  Though be held  that  the Bye-laws  of  the East India Cotton Association,  Ltd.  were statutory,  and  that ss. 46 and 47 of the  Arbitration  Act applied, he was of opinion that s. 20 could not be  invoked, because no action under sub-s. (4) of a. 20 could be  taken. The  reason given by the learned Judge was that  under  that sub-section  the Court had to appoint an arbitrator, if  the parties  failed  to  agree, and  that  sub-section  was  not applicable,  because the machinery of Bye-law 38-A  left  no power  of action to the Court.  He also felt that there  was no averment in the petition that the parties had not agreed. On  the  rest of the points raised by the  buyers  in  their affidavits,  the learned Judge held against them.   He  held that, in view of ss. 21(2) and 21(3) of the Foreign Exchange Regulation Act, there was no infringement of that Act by the agreement  entered into, though he expressed a doubt if  the words " legal proceedings " in s. 21(3) were wide enough  to include  an  arbitration.  He also held that cl.  7  of  the conditions under which the contract was to be performed was, at  least  in part and under certain  circumstances,  not  a contravention of the Import and Export Control Act, 1947, or the Import Trade Control Order issued Under ss. 3 and 4-A of that Act, and thus not wholly void.  He held lastly that the contract was not void for vagueness or 1028 uncertainty  either  on account of the reference  to  "  the usual  Force  Majeure Clause ", or because of the  words  if necessary " in the letter of November 30, 1957. The sellers appealed against the dismissal of the  petition, and  the buyers cross-objected against the adverse  findings



and  the  disallowance of costs.  The  appeal was  heard  by Tarkunde  and Chitale, JJ., and by separate  but  concurring judgments,  the appeal was allowed and  the  cross-objection dismissed,  and  the  buyers  were  ordered  to  pay   costs throughout.   The Divisional Bench agreed with K. T.  Desai, J.  on  all the points decided by him  against  the  buyers. They left open the question whether " legal proceedings " in s.  21(3) of the Foreign Exchange Regulation Act  were  wide enough  to  include an arbitration for the decision  of  the arbitrators  to be appointed, and addressing  themselves  to the question raised about s. 20, held that the petition  was maintainable.   They  were of opinion that the  Court  could order  the  arbitration agreement to be filed  and  also  to refer the dispute to arbitrators to be chosen in  accordance with  Bye-law  38-A,  though they felt that  if  the  latter action  could  not be taken, at least the  first  could  be, because  the  procedural part could not  destroy  the  power conferred to file the agreement. In  this appeal, all the arguments which had  failed  before the  High Court were urged before us.  Shortly stated,  they are:  that the contract was void (a) for illegality and  (b) for  uncertainty  and  vagueness on two  grounds;  that  the petition  under  s.  20 of the Indian  Arbitration  Act  was incompetent, as that section was inapplicable; and that  the law governing the parties was not the Indian law but the law of  British  East  Africa.  We shall  now  deal  with  these contentions. The first contention is that cl. 7 of the agreement involves a  breach of the Foreign Exchange Regulation Act.   Reliance is placed upon s. 5 of the Act, which reads as follows:               "  (5) Restrictions on payment8.-(1)  Save  as               may be provided in and in accordance with  any               general   or   special  exemption   from   the               provisions  of  this subsection which  may  be               granted conditionally or               1029               unconditionally by the Reserve Bank, no person               in, or resident in, British India shall-               (e)   make any payment to or for the credit of               any   person  as  consideration  for   or   in               association with(1) the receipt by any  person               of a payment or the acquisition by any  person               of property outside India;               (ii)  the  creation or transfer in  favour  of               any  person  of  a  right  whether  actual  or               contingent  to  receive a payment  or  acquire               property outside India: " It  is contended that the agreement envisaged  (a)  payments for goods in Africa against shipping documents, (b)  payment in Africa of carrying over charges, and (c) in the event  of resale,  payment  of  deficit also in Africa.   It  is  also contended  that  the  two  clauses  (6  and  7)  contemplate acquisition  of  property  in Africa.  The  clauses,  it  is submitted, also involved acquisition of foreign exchange, if the goods were resold in Africa and credit for the price was given to the buyers.  This, it is argued, was a breach of s. 5,  unless there was a general or special exemption  granted by  the Reserve Bank in connection with this  contract,  and that  no such exemption was in existence when  the  contract was made.               In  this  connection,  s. 21  of  the  Foreign               Exchange  Regulation  Act  may  be  read.   It               provides:-               "  21.  Contracts in evasion of this  Act.-(1)               No  person  shall enter into any  contract  or



             agreement  which would directly or  indirectly               evade or avoid in any way the operation of any               provision   of  this  Act  or  of  any   rule,               direction or order made thereunder.               (2)   Any  provision  of,  or  having   effect               under, this Act that a thing shall not be done               without   the   permission  of   the   Central               Government  or  the Reserve  Bank,  shall  not               render invalid any agreement by any person  to               do  that  thing,  if  it  is  a  term  of  the               agreement that thing shall not be done  unless               permission   is   granted   by   the   Central               Government  or the Reserve Bank, as  the  case               may  be;  and it shall be an implied  term  of               every contract governed               1030               by  the law of any part of British India  that               anything agreed to be done by any term of that               contract which is prohibited to be done by  or               under  any  of  the  provisions  of  this  Act               except.  with  the permission of  the  Central               Government  or the Reserve Bank, shall not  be               done unless such permission is granted.               (3)   Neither  the provisions of this Act  nor               any   term  (whether  expressed  or   implied)               contained  in any contract that  anything  for               which the permission of the Central Government               or  the Reserve Bank is required by  the  said               provisions  shall  not be  done  without  that               permission,  shall prevent  legal  proceedings               being brought in British India to recover  any               sum which, apart from the said provisions  and               any  such  term, would be due,  whether  as  a               debt, damages or otherwise, but-               (a)   the said provisions shall apply to  sums               required  to be paid by any judgment or  order               of  any  Court as they apply  in  relation  to               other sums; and               (b)   no steps shall be taken for the  purpose               of  enforcing  any judgment or order  for  the               payment   of  any  sum  to  which   the   said               provisions  apply except as respects  so  much               thereof  as  the  Central  Government  or  the               Reserve  Bank, as the case May be, may  permit               to be paid; and               (c)   for  the purpose of considering  whether               or  not to grant such permission, the  Central               Government  or the Reserve Bank, as  the  case               may be, may require the person entitled to the               benefit  of  the  judgment or  order  and  the               debtor under the judgment or order, to produce               such documents and to give such information as               may be specified in the requirement.  " No doubt, sub-s. (1) prohibits contracts in contravention or evasion,  directly  or indirectly, of the  Foreign  Exchange Regulation  Act,  and if there was nothing  more,  then  the argument would be understandable.  But, sub-s. (2)  provides that  the condition that a thing shall not be  done  without the  permission  of  the Reserve Bank shall  not  render  an agreement 1031 invalid,  if  it is a term of the agreement that  the  thing shall  not  be  done unless permission  is  granted  by  the Central  Government or the Reserve Bank and further that  it shall  be an implied term of every contract governed by  the



law of any part of India that anything agreed to be done  by any term of that contract, which cannot be done except  with the  permission  of  the Reserve Bank, shall  not  be  done, unless permission is granted.  Sub-section (3) allows  legal proceedings  to  be brought to recover sum due  as  a  debt, damages or otherwise, but no steps shall be taken to enforce the  judgment, etc., except to the extent permitted  by  the Reserve Bank. The effect of these provisions is to prevent the very  thing which  is  claimed here, namely, that the  Foreign  Exchange Regulation  Act  arms persons against performance  of  their contracts  by  setting  up the  shield  of  illegality.   An implied  term is engrafted upon the contract of  parties  by the  second  part  of sub-s. (2), and  by  sub-s.  (3),  the responsibility  of obtaining the permission of  the  Reserve Bank before enforcing judgment, decree or order of Court, is transferred to the decree-holder.  The section is  perfectly plain,  though perhaps it might have been worded better  for which a model existed in England. It  is  contended that s. 21 uses the word "  permission  ", while  s. 5 speaks of an exemption, and that ss.  21(2)  and 21(3)  do  not cover the prohibition in a.  5.  The  Foreign Exchange Regulation Act, no doubt, uses diverse words  like, "  authorise ", " exempt " and " permission "  in  different parts.   The  word  " exempt " shows that a  person  is  put beyond  the application of law, while " permission  "  shows that  he is granted leave to act in a particular  way.   But the  word  SC  permission " is a word  of  wide  import.   " Permission " in this section means only leave to do some act which  but for the leave would be illegal.  In  this  sense, exemption is just one way of giving leave.  If one went only by the word and searched for those sections where the word " permission " is expressly used, ss. 21(2) and (3) are likely to prove a dead letter.  This could not have been  intended, and the very 1032 elaborate  provisions in those sub-sections show that  those matters   were  contemplated  which  are  the   subject   of prohibition in s. 5. In our opinion, the argument is without foundation. The contention, that on resale the price would have  accrued to the buyers in the first instance, as the sellers would be acting  as the agents of the buyers, is also incorrect.   It has  been  rightly pointed out by K. T. Desai, J.  that  the right  of  resale given by ss. 54(2) and (4) of  the  Indian Sale of Goods Act is exercised by the seller for himself and not  as  an agent of the buyer, when the latter is  given  a notice of sale.  This is indeed clear from the fact that the buyer  is  not  entitled to the profit  on  resale  in  that contingency,  though  liable for damages.  The  position  is different when no notice is so sent.  Then the profits go to the buyer.  Perhaps, in that event it may be possible to say that  the  seller acted as an agent.  But, in  the  case  of resale  with prior notice, there is no payment to the  buyer and no contravention of the Foreign Exchange Regulation Act. The  contention that the contract involved an actual or,  at least,  a  contingent right to or  acquisition  of  property abroad is not correct.  Even if it were so, the contract  is saved  by s. 21, as already explained.  In our opinion,  the contract was not void for illegality. The  agreement is said to be void because of  vagueness  and uncertainty arising from the use of the phrase " subject  to the usual force majeure clause ". The argument is that there was  no  consensus  ad idem, and that the  parties  had  not specified  which force majeure clause they had in mind.   We



were taken through the Encyclopaedia of Forms and Precedents and  shown  a number of force majeure  clauses,  which  were different.  We were also taken through a number of  rulings, in which the expression force majeure " had been  expounded, to  show that, there is no consistent or  definite  meaning. The  contention  thus is that there being  no  consensus  ad idem,  the contract must fail for vagueness or  uncertainty. The  argument,  on  the  other side, is  that  this  may  be regarded as a surplusage, and, if meaningless, ignored.   It is 1033 contended by the respondents that the addition of the word " usual"  shows  that there was some clause which used  to  be included in such agreements.  The’ respondents also refer to s. 29 of the Indian Contract Act, which provides: "Agreements, the meaning of which is not certain, or capable of being made certain, are void, " and emphasise the words " capable of being made certain ", and contend that the clause was  capable  of  being  made certain,  and  ex  facie,  the agreement was not void. McCardie J. in Lebeaupin v. Crispin (1) has given an account of  what is meant by "force majeure " with reference to  its history.   The  expression "force majeure " is  not  a  mere French  version of the Latin expression" Vis major ". It  is undoubtedly  a  term  of wider  import.   Difficulties  have arisen in the past as to what could legitimately be included in "force majeure ". Judges have agreed that strikes, break- down  of machinery, which, though normally not included  in" Vis Major" are included in "force majeure ". An analysis  of rulings  on  the subject into which it is not  necessary  in this  case  to  go, shows that where reference  is  made  to "force  majeure ", the intention is to save  the  performing party from the consequences of anything over which he has no control.  This is the widest meaning that can be given to  " force  majeure  ", and even if this be the  meaning,  it  is obvious  that the condition about "force majeure, "  in  the agreement  was  not vague.  The use of the word  "  usual  " makes  all the difference, and the meaning of the  condition may  be  made  certain by evidence  about  a  force  majeure clause, which was in contemplation of parties. Learned  counsel  for the appellants relies strongly  on  a, decision  of  McNair,  J. in British  Industries  v.  Patley Pressings(2).   There, the expression used was  "subject  to force  majeure conditions ". The learned Judge held that  by conditions  "  was meant. clauses and not  contingencies  or circumstances,  and  that  there being a  variety  of  force majeure clauses in the trade, there (1) [1920] 2 K.B. 714. (2) [1953] 1 All E.R. 94. 1034 was  no  concluded  agreement.  The:  case  is  distinguish. able,  because  the reference to force majeure  clauses  was left at large.  The addition of the word " usual " makes  it clear that here some specific clause was in the   minds   of the parties.  Learned counsel also relies upon a decision of the House of Lords in Scammell (G.) and Nephew    Ltd.    v. Ouston (H.C. and J.G.) (1), where the reference to " on hire purchase  terms"  was held to be too vague to  constitute  a concluded contract.  It will appear from the decision of the House of Lords that the clause was held to be vague, because no precise meaning could be attributed to it, there being  a variety  of  hire  purchase clauses.  The use  of  the  word "usual"  here,  enables evidence to be led to  make  certain which clause was, in fact, meant.  The case of the House of, Lords  does not, therefore, apply.  Both the cases to  which



we  have referred were decided after parties had entered  on evidence, which is not the case here. Our  case is more analogous to the decision referred  to  in Bishop & Baxter Ld. v. Anglo-Estern Trading & Industrial Co. Ld.  (2),  namely, Shamrock S. S. Co. v.,  Storey  (3).   In speaking  of the condition there, Lord Goddard  observed  as follows:               "  Abbreviated  references  in  a   commercial               instrument  are,  in spite of  brevity,  often               self-explanatory  or susceptible  of  definite               application in the light of the circumstances,               as, for instance, where the reference is to  a               term,  clause,  or  document  of  a  wellknown               import like c.i.f. or which prevails in common               use  in a particular place of  performance  as               may  be  indicated  by  the  addition  of  the               epithet  ’usual’ : see Shamrock S. S.  Co.  v.               Storey  (a), where ’usual colliery  guarantee’               was referred to in a charter-party in order to               define loading obligations." The addition of the word " usual " refers to something which is invariably to be found in contracts of a particular type. Commercial  documents  are sometimes expressed  in  language which  does  not, on its face, bear a  clear  meaning.   The effort  of Courts is to give a meaning, if  possible.   This was laid down by the (1) [1941] A.C. 251.                (2) [1944] 1 K.B. 12. (3)  (1899) 5 Com.  Cas, 21, 1035 House  of  Lords in Hillas & CO. v. Arcos Ltd.  1,  and  the observations  of Lord Wright have become classic,  and  have been quoted with approval both by the Judicial Committee and the House of Lords ever since.  The latest case of the House of  Lords  is  Adamastos Shipping Co.  Ltd.  v.  Anglo-Saxon Petroleum Co. Ltd.(2). There, the clause was " This bill  of lading  ", whereas the document to which it referred  was  a charter-party.   Viscount Simonds summarised all  the  rules applicable to construction of commercial documents, and laid down   that  effort  should  always  be  made  to   construe commercial agreements broadly and one must not be astute  to find defects in them, or reject them as meaningless. Applying these tests to the present case and in the light of the  provisions of s. 29 of the Indian Contract Act,  it  is clear  that  the clause impugned is capable  of  being  made certain and definite by proof that between the parties or in the  trade  or  in dealings with  parties  in  British  East Africa, there was invariably included a force majeure clause of a particular kind. In ’our opinion, the contract was not void for vagueness  or uncertainty by reason of the reference in the terms  stated, to  the  force  majeure  clause.   Mr.  Daphtary  posed  the question  as to on whom was the burden of proving the  usual force  majeure clause.  In our opinion if the  agreement  is not  void for uncertainty, that question would be  a  matter for the decision of the arbitrators.  It is too early to say by what evidence and by whom the usual force, majeure clause must be established. The  next ground on which it is said that the agreement  was void for uncertainty has reference to the employment of  the words " if necessary " in the letter of November, 30,  1957. The effect of that letter is to make an alteration in cl.  6 of the agreement, which has been quoted already.  Under that clause, the buyers were to obtain the import licence and  to communicate the number thereof to the sellers not later than February  20, 1958, and in the event of their failure to  do



so for any reason whatsoever, the sellers (1) [1932] All E.R. 494. (2) [1959] A.C. 133, 153. 132 1036 were  entitled "at their discretion " either to  carry  over the  goods  or to ask the buyers to pay for  the  contracted goods  and  take delivery in British East Africa.   By  that letter,  the  sellers confirmed that " if necessary  "  they would  carry  over  the contracted  goods  for  two  months, namely, March and April, subject to payment of charges.   It is  contended that the words " if necessary "  are  entirely vague and do not show, necessary for whom, when and why.  In our opinion, this argument has no force whatever.  Under cl. 6,  the sellers had an absolute discretion either  to  carry over  the  goods or to insist on delivery being  taken.   By this  letter, they have said that, if necessary, that is  to say. if the buyers find it difficult to supply the number of the  import licence, the contract would be carried  over  to March and April.  By this amendment, the sellers surrendered to  a certain extent their absolute discretion.  The  clause means that the contract was not extended to March and April, but  that  the sellers would extend it to that  period,.  if occasion  demanded.  Since both the parties agreed  to  this letter  and the buyers confirmed it, it cannot be said  that there was no consensus ad idem, or that the whole  agreement is void for uncertainty. We  shall  now consider the next argument,  which  was  very earnestly  urged,  before  us.   It is that  s.  20  of  the Arbitration  Act cannot be made applicable to this  case  at all.   We  have already quoted extracts from  the  agreement which  include the clause by which the Bye-laws of the  East India Cotton Association Ltd., Bombay, were applied to  this contract, except Bye law 35,which deals with arbitration  on quality  in  case  of East  African  cotton.   Bye-law  1(B) relates to East African cotton, and it says that Bye-laws  1 to  46  inclusive (with certain exceptions) shall  apply  to contracts  in  respect  of  East  African  cotton.   It  was conceded  before the High Court and also before us that  the Bye-laws  are  statutory.. The buyers were  members  of  the Association  but  not  the  sellers;  but  the  Bye-laws  on arbitration,   with   which  we   are   concerned,   include arbitrations between a member and a 1037 non-member.   We are concerned directly with  Bye-law  38-A. Bye-law 38-A in its opening portion, reads:               All  unpaid claims, whether admitted  or  not,               and all disputes (other than those relating to               quality)  arising  out of or  in  relation  to               contracts   (whether  forward  or  ready   and               whether  between members or between a,  member               and  a non-member) made subject to these  Bye-               laws  shall be referred to the arbitration  of               two disinterested persons one to be chosen  by               each party.  The arbitrators shall have  power               to  appoint an umpire and shall do so  if  and               when they differ as to their award." Then  follow  certain provisions, which  were  stressed  but which  need not be quoted in extension Shortly stated,  they are  that the arbitrators must make their award in 15  days, unless  time be extended by the Chairman.  The umpire is  to be  appointed within 15 days or such extended period as  may be fixed by the Chairman and the umpire is to make his award within 10 days, unless time be extended by the Chairman.  In case  of  disagreement or failure of a party to  appoint  an



arbitrator,  the  Chairman may appoint  an  arbitrator,  and similarly  the Chairman is to appoint the umpire and he  may even  appoint  himself.  Other powers are conferred  on  the Chairman,  who is the Chairman of the Board of Directors  of the East India Cotton Association Ltd. The  contention is that arbitrations under  the  Arbitration Act,  like  those  under  Sch.  11  of  the  Code  of  Civil Procedure,  are of three kinds described by Lord  Macnaghten in  Ghulam  Jilani  v. Muhammad Hassan (1),  and  that  this belongs  to the second category there described, in which  " all  further  proceedings are under the supervision  of  the Court  ". It is argued that by the application of  the  Bye- laws, the Court is left no powers under s. 20 which is being invoked,  and that s. 20 cannot thus apply.  Section  20  of the Arbitration Act, in so far as it is material to this point, is as follows:               "   20.    Application  to   file   in   Court               arbitration  agreement.-(1) Where any  persons               have entered into an               (1)   (1901) L.R. 29 I.A. 51, 56, 57.               1038               arbitration agreement before the,  institution               of any suit with respect to the subject-matter               of the agreement or any part of it, and  where               a difference has arisen to which the agreement               applies,  they  or  any of  them,  instead  of               proceeding  under Chapter II, may apply  to  a               Court  having  jurisdiction in the  matter  to               which   the   agreement  relates,   that   the               agreement be filed in Court.               (3)   On  such  application  being  made,  the               Court shall direct notice thereof to be  given               to all parties to the agreement other than the               applicants,  requiring  them  to  show   cause               within  the time specified in the  notice  why               the agreement should not be filed.               (4)   Where no sufficient cause is shown,  the               Court  shall order the agreement to  be  filed               and  shall make an order of reference  to  the               arbitrator  appointed by the parties,  whether               in  the agreement or otherwise, or  where  the               parties cannot agree upon an arbitrator, to an               arbitrator appointed by the Court.               (5)   Thereafter the arbitration shall proceed               in accordance with, and shall be governed  by,               the  other  provisions of this Act so  far  as               they can be made applicable." The sellers rely upon cl. (5), which enjoins the application of the provisions of the Arbitration Act, so far as they can be made applicable.  Reference is then made to provisions of Chap.  II and the Schedule of the Act laying down the powers of the Court, and they are contrasted with the provisions of the  Bye.  laws  to  show that if  the  latter  prevail,  no residuum  of  power  is left to the Court,  and  that  after filing  the agreement, the Court must abdicate in favour  of the  Chairman  and  the  Act, in  terms,  ceases  to  apply. Reference  is  also made to s. 47 of  the  Arbitration  Act, which provides:               "Subject to the provisions of section 46,  and               save in so far as is otherwise provided by any               law   for  the  time  being  in   force,   the               provisions  of  this Act shall  apply  to  all               arbitrations and to all proceedings thereunder               "’ (Proviso omitted)               1039



             The opening words of s. 47 takes us to a.  46,               which may be read at this stage.  It provides:                "The   provisions   of   this   Act,   except               subsection  (1) of section 6 and  sections  7,               12,   36   and  37,  shall  apply   to   every               arbitration under any other enactment for  the               time  being  in force, as if  the  arbitration               were pursuant to an arbitration agreement  and               as if that other enactment were an arbitration               agreement,  except  in so far as this  Act  is               inconsistent with that other enactment or with               any rules made thereunder." Section  46 makes the provisions of any other  enactment  or any  rules made thereunder to prevail over  the  Arbitration Act,  if  inconsistent with the latter.  In  view  of  these several  provisions,  it is clear that the  Arbitration  Act applies  to  all  arbitrations  and  Chap.   III  makes   it applicable  also to arbitrations, in which  the  arbitration agreement  is  asked  to  be filed in  Court  under  s.  20, subject,  however, to this that the provisions of any  other enactment or rules made thereunder, if inconsistent with the Arbitration Act, are to prevail. Learned  counsel  for the buyers contends  that  nothing  is saved  of  the Act.  This is not correct.   To  begin  with, questions  as to the existence or validity of the  agreement are saved from decisions by arbitrators or umpires,  however appointed.   Since such a plea can only be raised in bar  of an   application   by  persons  seeking   a   reference   to arbitration, at least that portion of the Act still applies, and  that power can only be exercised by the  Court.   Other provisions  of Chap.  II, like ss. 15 and 16,  still  remain applicable.   We need not give a list of all the  provisions which may be saved, because that will involve an examination side by side, of the sections of the Act and the  provisions of  the Bye-laws.  So long as something is saved, it  cannot be  said  that the Court after receiving the  agreement  and ordering  that  it  be  filed,  becomes  completely  functus officio. But  the  crux  of the argument is that  the  provisions  of tub.a.  (4)  of  s. 20 read with  sub-s.(1),  ibid.,  cannot apply, and the Court, after filing the agreement, will have 1040 to do nothing more with it, and this shows that s. 20 is not applicable.  This argument overlooks the fact that this is a statutory  arbitration governed by its own rules,  and  that the  powers and duties of the Court in sub-s. (4) of  s.  20 are  of  two  distinct kinds.  The  first  is  the  judicial function  to  consider  whether  the  arbitration  agreement should  be filed in Court or not.  That may involve  dealing with  objections  to  the  existence  and  validity  of  the agreement  itself.   Once that is done, and  the  Court  has decided that the agreement must be filed, the first part  of its  powers and duties is over.  It is significant  that  an appeal  under s. 39 lies only against the decision  on  this part  of  sub-s.  (4).  Then follows a  ministerial  act  of reference  to  arbitrator or arbitrators  appointed  by  the parties.  That also was perfectly possible in this case,  if the parties appointed the arbitrator or arbitrators.  If the parties  do not agree, the Court may be required to  make  a decision as to who should be selected as an arbitrator,  and that  may be a function either judicial, or  procedural,  or even  ministerial; but it is unnecessary to decide which  it is. In the present case, the parties by their agreement have placed  the power of selecting an arbitrator or  arbitrators (in  which we include also the umpire) in the hands  of  the



Chairman of the Board of Directors of the East India  Cotton Association,  Ltd., and the Court can certainly perform  the ministerial act of sending the agreement to him to be  dealt with  by him.  Once the agreement filed in Court is sent  to the  Chairman, the Bye-laws lay down the procedure  for  the Chairman  and  the appointed arbitrator  or  arbitrators  to follow,  and  that  procedure,  if  inconsistent  with   the Arbitration  Act,  prevails.  In our opinion,  there  is  no impediment  to  action  being taken under s.  20(4)  of  the Arbitration Act. We  may  dispose of here a supplementary argument  that  the dispute  till  now  is  about the  legal  existence  of  the agreement including the arbitration clause, and that this is not  a  dispute arising out of, or in relation to  a  cotton transaction.  Reference was made to certain observations  in Heyman v. Darwins Ltd.(1). In (1)  [1942] A.C. 356. 1041 our opinion, the words of the Bye-law "arising out ’of or in relation  to contracts" are sufficiently wide to  comprehend matters,  which  can legitimately arise under  s.  20.   The argument is that, when a, party questions the very existence of  a contract, no dispute  can be said to arise out of  it. We think that this is not correct, and even if it were,  the further  words " in relation to " are sufficiently  wide  to comprehend even such a case.  In our opinion, this  argument must also fail. It was contended lastly that the law applicable to the  case is  the  lex  loci solutionis, that is to say,  the  law  of British  East Africa.  Reference was made to a passage  from Pollock and Mulla’s Contract Act, Eighth Edn., p. 11,  where it is observed as follows:               " In ordinary circumstances the proper law  of               a  contract  (to use  Mr.  Dicey’s  convenient               expression)  will  be the law of  the  country               where  it  is made.  But where a  contract  is               made in one country and to be performed wholly               or in part in another’, the proper law may  be               presumed  to be the law, of the country  where               it is to be performed." (Auckland  Corporation               v. Alliance Assurance Co.) (1)               The learned authors observe, on the same  page               further :                "But  these rules are only in the  nature  of               presumptions, and subject to the intention  of               the  parties,  whether expressly  declared  or               inferred  from  the terms and  nature  of  the               contract and the circumstances of the case." Reliance  was  also placed on Chitty’s Law of  Contract  and Rule  148,  sub-r.  (3),  Second  Presumption,  in   Dicey’s Conflict  of  Laws,  Seventh  Edn., p.  738,  on  which  the statement of the law in Pollock and Mulla is based. Whether the proper law is the lex loci contracts or lex loci solutionis  is  a  matter  of  presumption;  but  there  are accepted rules for determining which of them is  applicable. Where  the parties have expressed themselves, the  intention so  expressed overrides any presumption.  Where there is  no expressed intention, (1) [1937] A.C. 587. 1042 then  the rule to apply is to infer the intention from   the terms  and  nature  of the contract  and  from  the  general circumstances  of the case.  In the present case,  two  such circumstances  are decisive.  The first is that the  parties have  agreed that in case of dispute the Bombay  High  Court



would  have jurisdiction, and an old legal proverb  says,  " Qui  elicit  judicem eligit jus" If Courts of  a  particular country  are chosen, it is expected, unless there be  either expressed intention or evidence, that they would apply their own  law  to the case.  See N. V. Kwick Who  Tang  v.  James Finlay  &  Co.  (1).  The second circumstance  is  that  the arbitration  clause indicated an arbitration in  India.   of such arbitration clauses in agreements, it has been said  on more  than one occasion that they lead to an inference  that the  parties  have adopted the law of the country  in  which arbitration  is to be made.  See Hamlyn & Co.  v.  Tallisker Distillery  (2),  and  Spurrier  v.  La  Cloche  (3).   This inference,  it was said in the last case, can be drawn  even in a case where the arbitration clause is void according  to the law of the country where the contract is made and to  be performed.  In our opinion, in this case, the  circumstances clearly  establish that the proper law to be applied is  the Indian Law. In  the  result,  the appeal fails, and  is  dismissed  with costs. Appeal dismissed. (1) [1927] A.C. 604.          (2) [1894] A.C. 204. (3) [1902] A.C. 446 (P.C.).