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PETITIONER: MEGNA MILLS CO.  LTD.

       Vs.

RESPONDENT: ASHOKA MARKETING CO.

DATE OF JUDGMENT: 06/11/1970

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. HEGDE, K.S.

CITATION:  1971 AIR  166            1971 SCR  (2) 751  1970 SCC  (3) 168  CITATOR INFO :  R          1974 SC1579  (10,11,13)

ACT: Forward  Contracts  (Regulation) Act, 1952,  ss.  113  (aa), 15(3A)--Bye-laws  made under Act-Working Manual  Chapter  V, Bye-Laws  1, 15 and 17-Contract, providing  for  arbitration Not executed in prescribed form-Contract is not  enforceable Bye-law 1(b) when read with Byelaws 15 and 17 is mandatory.

HEADNOTE: The  appellant  was  a member of the  East  India  Jute  and Hessian  Exchange Limited, the only  association  recognised under  the provisions of the Forward Contracts  (Regulation) Act   1952.   The  respondent  was  not  a  member  of   the association.  On December 21, 1962 a transaction was entered into  between the parties by means of letter written by  the responden,  to  the appellant.  It was  agreed  between  the parties  that apart from the terms mentioned in  the  letter all other terms and conditions of the East India and Hessian Exchange  standard  contract  would  be  applicable  to  the contract.   The standard contract ’forms and the  rules  and bye-laws   of   the  Exchange  inter  alia,   provided   for arbitration of the Bengal Chamber of Commerce and  Indusrry. On  disputes  arising  between  the  parties  the  appellant referred its claim to the arbitration of the Bengal  Chamber of  Commerce and Industry.  When the Chamber proceeded  with the  arbitration  pursuant to the reference  the  respondent filed a petition before the Calcutta High Court under s.  33 of the Indian Arbitration Act, 1940.  The High Court came to the conclusion that the contracts in question violated  bye- laws  1 (b) and 15 in Ch.  V of the Working Manual  and  the contravention  of  these  bye-laws  rendered  the  contracts illegal  under  the provision is of bye-law 17 of  the  same Chapter. In particular the High Court noticed the absence of any  term  in  "he  contracts similar  to  cl.  (2)  in  the prescribed  form  in  Appendix 11 which read  :  "Buyers  to give......   clear  working  days  notice  to  place   goods alongside."  Appeal against the judgment of the  High  Court was filed by special leave. HELD  :  The  High  Court was  right  in  holding  that  the

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contracts  in question were not in the prescribed  form  and thus  they did not comply with the requirement of bye-law  1 of  Ch.  V. There can be no manner of doubt that bye-law  is mandatory when read with bye-laws 15 and 17. [756 g] Under bye-law 15 no member shall enter into any transferable specific  delivery  contract  otherwise than  on  terms  and conditions  prescribed under the bye-laws and under  bye-law 17 if there is a contravention, inter alia of bye-law 15 the contract  shall be rendered illegal by virtue of the  provi- sion  contained  in  s.  15(3A)  of  the  Forward  Contracts (Regulation)  Act.  Section 11(3)(aa) specifically  empowers the  Exchange to make bye-laws the contravention of  any  of which  shall make a forward contract entered into  otherwise than   in  accordance  with  such  bye-laws  illegal.    If, therefore, the contracts in question did not comply with the requirement of bylaw I (b) of Ch.  V they would be  rendered illegal and void. [ 756 H, 757 A]’ There  was non-compliance with condition No. 2  despite  the fact  that  in the letters evidencing the contracts  it  was mentioned that all other terms 7 5 2 :and  condition  of the standard contracts of  the  Exchange would  be applicable.  Even if it was not necessary  to  use the same language the number of clear working days had to be specified  which was not done in the contracts  in  dispute. Condition No. 2 cannot be said to be inconsequential because it must be stipulated how many working days notice has to be given by the buyers to place goods alongside "export vessel, in the Port of Calcutta." [757 C-D] In the result the appeal must fail. Radhakisson Gopikisson v. Balmukand Ramchandra. 60 I.A.  63, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 2012  and 2013 of 1966. Appeals by special leave from the judgments and orders dated April 4, 1966 of the Calcutta High Court in Matters Nos.  26 and 27 of 1966. A. K. Sen, O. P. Khaitan and P. N. Gupta, for the  appellant (in C .A. No. 2012 of 1966). 0.   P. Khaitan and D. N. Gupta, for the appellant (in  C.A. No. 2013 of 1966). S.   T. Desai, H. K. Puri and K. K. Jain, for the respondent (in C.A. No. 2012 of 1966). H.   K. Puri and K. K. Jain, for the respondent  (in  C.A. No. 2013 of 1966). The Judgment of the Court was delivered by- -Grover,  J. These two appeals by special leave are  from  a judgment  of  the  Calcutta  High  Court  holding  that  the disputes  between  the  parties could  not  be  referred  to arbitration. It is necessary to state the facts only in Civil Appeal  No. 2012/66.   The  appellant was and still is a member  of  the East  India  Jute & Hessian  Exchange  Limited,  hereinafter called  the  "Exchange",  which  is  the  only   association recognised  under  the provisions of the  Forward  Contracts (Regulation)  Act 1952, hereinafter called the  "Act".   The respondent  is  not a member of the  said  association.   On December  21, 1962 a transactions was entered  into  between the  parties by means of a letter written by the  respondent to the appellant.  This letter was in the following terms :               "We  have today bought from you the  following

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             goods               Description : Jute Carpet Backing cloth  bound               of cardboard cores 152" wide.                7 5 3               Weight : 9 oz on 36".               Wrap Ends  Per Inch 15.               Weft Ends : Per Inch 13.               Oil contents: Upto 2%               Quantity.   5,000  Rolls,  each  roll   having               continuous                length of 300 yards approximately.               Rate : Rs. 4,000 per ton.               Delivery:  500  Rolls monthly; March  1963  to               December 1963. All other terms and conditions of the East India and Hessian Exchange  standard  contract  will  be  applicable  to  this contract.  Please sign your acceptance on the duplicate copy of this letter." The  appellant from time to time delivered certain Rolls  of Jute Carpet Backing cloth under the aforesaid contract,  the price  of which was paid by the respondent.  As regards  the balance  number of Rolls deliverable under the contract  the appellant  purchased  back  and the  respondent  resold  the balance quantities of goods by a contract dated December  9, 1963  which  transaction  was embodied in a  letter  of  the appellant to the respondent dated December 9, 1963 and which was  countersigned  by  the respondent.   According  to  the appellant  it was agreed or understood between  the  parties that deliveries under the two contracts of December 21, 1962 and December 9, 1963 would be set off against each other  As regards 1,000 Rolls deliverable for the months of August and September  1963 under the contract dated December  21,  1962 the appellant is stated to have received from the respondent difference  in  the  price of goods but in  respect  of  the balance  of  1500  Rolls  the respondent  did  not  pay  the difference.   The appellant demanded the difference  payable by  the respondent under the said contracts.   Disputes  and differences having arisen between the parties in the  matter the  appellant  referred  its Claim to  the  arbitration  of Bengal Chamber of Commerce and Industry. this was  purported to have been done on the footing that the contracts provided that  all terms and conditions thereof would be governed  by the  bye-laws  of the Exchange for trading  in  transferable specific  delivery contracts.  The standard  contract  forms and  the  rules and bye-laws of the  Exchange,  inter  alia, provided  for arbitration of the Bengal Chamber of  Commerce and   Industry.   When  the  Chamber  proceeded   with   the arbitration pursuant to the reference the respondent filed a petition before the Calcutta High Court on February 19, 1966 under  S.  33 of the Indian Arbitration Act  1940.   It  was prayed  that  the  extent and validity  of  the  arbitration agreement contained in the contracts be determined and 1-L694Sup.CI/171 754 it be declared that there was no valid arbitration agreement between  the  parties  in respect  of  the  contracts  dated December  21,  1962 and December 9, 1963.   The  main  point raised  in the respondent’s petition was that the  contracts were not in accordance with the provisions of the Act or the bye-laws  of  the  Exchange  and  were  not  in  the   forms prescribed  and  were, ’therefore, void and  illegal.   This petition  was  heard  by  A. N. Sen,  J.,  who  allowed  the petition and held that the contracts were illegal and  there was no valid arbitration agreement between the parties. The Act provides for regulations of certain matters relating

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to  forward contracts, the prohibition of options  in  goods and for matters connected therewith including the setting up of a Forward Markets Commission, recognition of  association for  the purpose of the Act, for issuing  notifications  for regulating  or prohibiting forward contracts and  option  in goods etc.  Section 1 1 empowers a recognised association to make  bye-laws  for the regulation and  control  of  forward contracts  subject  to  previous  approval  of  the  Central Government.  Sub-section (3) of s. 11 is as folows               (3)   "The bye-laws under this section may(-a)               specify the bye-laws The contravention of  any               of               which  shall  make  a  contract  entered  into               otherwise than in accordance with the bye-laws               void under sub-section               (2)   of section 15;               (aa) specify the bye-law$ the contravention of               any  of  which shall make a  forward  contract               entered into otherwise than in accordance with               the bye-laws illegal under sub-section (3A) of               section 15.               (b)..................      " Under  s. 15(1) the Central Government may  by  notification declare the circumstances in which the forward contracts  in notified  goods would be void and illegal.  Sub-section  (2) of S. 15 provides that any forward contract in goods entered into in pursuance of sub-s. (1) which is in contravention of any  of the bye-laws specified in this behalf under cl.  (a) of  sub-s.  (3) of s. 11 shall be  void.   Sub-section  (3A) makes  any  forward  contract  in  goods  entered  into   in pursuance of sub-s. (1) which at the date of the contract is in  contravention of any of the bye-laws specified  in  this behalf under cl. (aa) of sub-s. (3) of s. 11 illegal. By means of a notification dated March 29, 1958, the Central Government declared as follows :-               "In exercise of the powers conferred by sub-s.               (1) of               section   15   of   the   Forward    Contracts               (Regulation) Act,                755               1952  (74  of  1952)  the  Central  Government               hereby  declares that the said  section  shall               apply  to  jute goods (hessian cloth  made  of               jute or bags of such hesisan cloth and sacking               cloth) in the City of Calcutta." Pursuant  to  the provisions of s. 1 1 of the  Act  and  the Exchange made bye-laws for trading in transferable specific, delivery  contracts in jute goods.  These bye-laws  and  the forms  of the contract prescribed are contained  in  Working Manual  Volume  III.   Chapter V of  the  Bye-laws  contains general  trading provisions.  According to  bye-laws  (1)(b) all  Transferable Specific Delivery  Contracts shall  be  in writing in the prescribed-forms (Appendix II for jute  goods and Appendix IV fort raw jute).  Clause (g) of the aforesaid bye-laws    (1)   laid     down   that   all    transferable specific  delivery contracts shall be  to the provisions  of the byelaws.  Bye-laws 15 and 17 may be reproduced               15.   "No   member   shall   enter   into    a               transferable specific delivery contract in raw               jute  and/or jute goods otherwise than on  the               terms  and Conditions prescribed  under  these               Bye-laws."               17.   "Any   transferable  specific   delivery               contract  entered into a raw jute and/or  jute               goods which at the date of the contract is  in

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             contravention, of the provisions of any of the                             Bye-laws 1 (c), 13, 14, 15 and 16 of-C hapter  V               shall  be  illegal  under  the  provisions  of               Section  15  (3A)  of  the  Forward  Contracts               (Regulation) Act,1952." The  main controversy has centered on the  question  whether the  contracts out of which the disputes arose were  in  the form  set out in Appendix II in the Working Manual.  It  was maintained by the appellant that although the contracts  out of which the disputes arose did not strictly conform to  the prescribed  form  but they were substantially, in  the  same terms  as were contained in the form.  As  only  substantial compliance  was necessary the appellant could not be  denied the  benefit  of  bye-laws contained in  Chapter  X  of  the Working Manual relating to arbitration.  Byelaw (1) of  that Chapter provides that arbitration of any claims and disputes whether admitted or not arising out of or in relation to all transferable specific delivery contracts in raw jute  and/or jute  goods between members or between members and  non-mem- bers under the provisions of the bye laws shall be  referred to the Tribunal of Arbitration either of the Bengal  Chamber of  Commerce  and  Industry or of the Indian  Chamber  of  I Commerce,  Calcutta,  I  as is agreed  in  the  contract  in accordance with the rules framed by the said Chamber for the purpose of arbitration by 7 56 its  tribunal from time to time provided where in  a  T.S.D. contract the name of the Tribunal of Arbitration of  either of  the  aforesaid two Chambers is omitted,  such  reference shall I be made to the Tribunal of Arbitration of the Bengal Chamber   of  Commerce  and  industry.   The  case  of   the respondent, however. was that the con tracts were not in the form  contained in Appendix 11 in the Working  Manual  which was the prescribed form under the bye-laws and therefore the bye-laws  including  the  one  relating  to  arbitration  in Chapt er X could not be made applicable for the, purpose  of referring the disputes to the Tribunal of Arbitration which, in  the  _present case, was the Bengal Chamber  of  Commerce and Industry,  Calcutta.   The  High  Court  came  to  the conclusion  that, the con.tracts in question  violated  bye- laws  1 (b) and 15 in Chapter V of the Working Manual.   The Contravention  of  these  bye-laws  rendered  the  contracts illegal  under  the provisions of bye-law 17  ,of  the  same Chapter.   The  learned  Judge  noticed  in  particular  the absence, of any term in the contracts similar to clause  (2) in the prescribed form in Appendix II which is as follows               "Buyers  to  give.............  clear  working               days notice to place goods alongside." Now  in the contracts no such term appeared that the  buyers would  give  clear notice to place goods alongside,  of  the number  of ’working days specified.  It has  been  contended before  us on behalf of the appellant that the mere  absence of  this  condition  or  term  in  the  contracts  was   not sufficient  to take them outside the prescribed  form  which had  only to be substantially complied with and it was  not necessary  that  blanks in each and every condition  in  the form should have been filled up.  It has further been  urged that  byelaw  I (b) of Chapter V Could not  be  regarded  as mandatory  requiring the details in the form in Appendix  11 to  be  completed  in all cases.   Even  with  reference  to condition  (2) in the prescribed form it has been  submitted that  if the number of days was not specified  a  reasonable time  should have been read into that ,condition.  In  other words  the buyers were to give notice to place  goods  along

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side within a reasonable time. In our opinion, the High Court was right in holding that the contracts  in question were not in the prescribed  form  and thus  the did not comply with the requirement cl  bye-law  I (b) of Chapter V. There can be no manner of doubt that  bye- law is mandatory when read with bye-laws 15 and 17.  It must be  remembered that under bye-law 15. no member shall  enter into  any transferable specific delivery contract  otherwise than  on terms and conditions prescribed under the  bye-laws and  under  bye-law 17 if there is  a  contravention,  inter alia,  of bye-law 15 the contract shall be rendered  illegal by virtue of the provisions contains in s. 15  757 3A)  of the Act.  Section 11 (3) (aa) specifically  empowers the  exchange to make bye-laws the contravention of  any  of which  hall make a forward contract entered  into  otherwise than   in  accordance  with  such  bye-laws  illegal.    If, therefore, the contracts in question did not comply with-the requirement  of  bye-law  1(b) of Chapter V  they  would  be rendered illegal and void. It  is true that in the letters evidencing the contracts  it was  Mentioned "all other terms and conditions of  the  East India  and  Hessian  Exchange  standard  contract  will   be applicable", which may be taken to import conditions 1 to  7 given  in  the penultimate column of  the  prescribed  form. There  Would  still be non-compliance with condition  No.  2 reproduced before.  Even if it was not necessary to use  the same  language  the number of clear working days had  to  be specified  which was not done in the contracts  in  dispute. Condition  No.  2  cannot  be  regarded  as  inconsequential because  it must be stipulated how many working days  notice has  to  be  given by the buyers to  place  goods  alongside "export vessel in the Port of Calcutta".  Literal compliance with  the  prescribed form may not be essential but  if  the contract does  not, contain all the terms and conditions set out  in  the  form  the contract  will  be  void  under  the provisions set out before; (See the ratio of the decision in Radhakrisson Gopikisson v. Balamukand Ramchandra. For  the reasons given above the appeals must fail and  they are dismissed with costs.  One hearing fee. G.C.                                                 Appeals dismissed. 758