14 March 1950
Supreme Court


Case number: Appeal (civil) 26 of 1949






DATE OF JUDGMENT: 14/03/1950


CITATION:  1950 AIR    7            1950 SCR   64

ACT:    Bombay Cotton Contracts Act (IV of 1932), s. 8  (1)--East India  Cotton  Association Bye-laws, Nos.  51-A,  65-A,  80, 82--Cotton  Contract--Contract note  stating minimum  amount Of   deposit   as   Rs.   25   and    not   in    prescribed form--Validity--Arbitration  and  award  under   arbitration clause, whither void.

HEADNOTE:     Section  8 of the Bombay Cotton Contractors Act,  1939,, provided  that  contracts entered into after  the  date  the commencement of the Act which are not in accordance with the bye-laws of any recognised cotton association shall be void. Bye-law 80 of the East India Cotton Association, Ltd., which was  a recognised cotton association within the  meaning  of the  Act provided that  contracts between members acting  as commission agents on the one hand and their constituents  on the  other shall be subject to the bye-laws and that a  con- tract note in the form given in the Appendix to the bye-laws shall  be  rendered in respect of every  contract.   Bye-law 51-A  originally  required a deposit at a rate     not  less than  Rs.  9,5 per bale and the  contract  note  accordingly contained  a  clause to that effect.  During  the  war  this bye-law was amended by reducing the minimum amount of depos- it to Rs. 12-8 per bale and introducing a new bye-law  (bye- law  65-A)  which, inter alia, gave certain options  to  the last buyer, and by a Notification of the Government the form of the contract note Was also amended by altering the  mini- mum  deposit  to  Rs. 12,-8 and adding two  new  clauses  to comply with the bye-law 65-A. A contract note rendered after these  amendments  to the byelaws and the form  of  contract note,  contained  a  rubber stamp impression  in  which  the minimum amount of deposit was stated as Rs. 9.5, and did not contain  the  two new clauses that were  introduced  by  the Government Notification:    Held,   that  the contract note  rendered  was   not   in accordance  with the bye-laws and in the prescribed form  as the  clause  relating to the minimum amount of  deposit  was



inconsistent with the provisions of bye-law 51-A as amended, and  the two new clauses had been omitted, even though.  the contract  note recited that it was made in  accordance  with the  byelaws, and it was accordingly void and a valid  award could not be made under the arbitration clause contained  in the note.    [PATANJALI  SASTRI  .J  preferred to  rest  his  decision solely  on  the  ground of the omission to  include  in  the contract  in  question the two clauses newly  added  in  the prescribed form in order to give effect to bye-law 65-A.]     Judgment of the Bombay High Court affirmed, 65

JUDGMENT:     APPEAL  from  the High Court of  Judicature  at  Bombay. Civil Appeal No. XXVI of 1949.     This  was  an appeal from a judgment and decree  of  the Bombay  High  Court (Stone C.J. and Coyajee J.)  dated  20th March, 1947, in Appeal No. 42 of 1946, reversing a  judgment of Chagla J. dismissing an application. made by the respond- ent  under the Indian Arbitration Act, 1940,  praying  inter alia  that  the arbitration agreement contained  in  certain contract  notes sent by the appellants to the respondent  be declared  invalid  and void and for setting aside  an  award made by arbitrators appointed under the said contract note.     M.C. Setalvad, (Rameshwar Nath with him), for the appel- lants.     C.K. Daphtary, (B. Sen and K.T. Desai with him), for the respondent.     1950. March 14.  The judgment of the Court was delivered by     DAS J.--This appeal arises out of an application made by the  Respondent  under  the Indian  Arbitration  Act,  1940, praying inter alia that the arbitration agreement  contained in certain contract notes including contract note No.  17996 sent  by the Appellants to the Respondent be declared to  be invalid, void and unenforceable and be set aside and that  a purported  award made by the arbitrators appointed in  terms of  the said contract notes be set aside.  That  application came to be made in the following circumstances:     The  Appellants were and are members of the  East  India Cotton  Association Ltd.  The Respondent, however,  was  not and is not a member of that Association. In April, 1945, the Respondent  employed the Appellants as his agents to  effect forward  contracts  for the sale and/or purchase  of  cotton according  to  the rules, regulations and bye-laws  of  that Association.  Between  the  9th April, 1945,  and  the  10th August,  1945,  the ’Appellants as such agents  put  through various  contracts  for sale and/or purchase of  cotton  for July, 1945, and September, 1945, deliveries and sent to  the Respondent 66 contract notes in respect of each of such contracts. All the said  contract notes were in printed forms, a specimen  copy whereof is set out at pages 12 to 15 of the Paper Book.   On the  10th August, 1945, the purchase of 900 bales of  cotton at  Rs. 432 per candy for September 1945  delivery  remained outstanding.   According  to  the Respondent,  on  the  11th August,  1945, the Respondent instructed the  Appellants  to close the said outstanding purchase by selling 900 bales for September 1945 delivery at a rate not less than Rs. 426  per candy,  which  is said to be the prevailing market  rate  on that  date.  As the Respondent did not receive any  contract



note from the Appellants in respect of the closing  transac- tion of 900 bales, the Respondent on the 18th August,  1945, put  on  record  his aforesaid instructions  and  asked  the Appellants  to  send  the contract  note.   The  Appellants, however, deny that any instruction was given by the Respond- ent  on the 11th August, 1945, for closing  the  outstanding contract.  They deny the receipt of the Respondent’s  letter of that date.  According to the Appellants the 21st  August, 1945, was a clearing date and on that clearing a sum of  Rs. 18,900  became  due  and payable by the  Respondent  to  the Appellants  and that instead of paying up his dues  the  Re- spondent concocted the false story of having given  instruc- tions  to the Appellants to close the outstanding  purchase. The  Appellants  by their letter of the 22nd  August,  1945, repudiated  the  allegations in the Respondent’s  last  men- tioned  letter and called upon the Respondent to pay up  Rs. 18,900  and gave notice to him that if he failed to  pay  up the amount by noon of the 23rd August, 1945, the  Appellants would be compelled to square up the outstanding contract  at their discretion on account and at the risk of the  Respond- ent.  The Respondent on the 24th August, 1945, denied having fabricated any false story and repudiated liability for  Rs. 18,900  and  returned  the Appellants’ bill.   On  the  27th August, 1945, the Appellants closed the outstanding contract for purchase of 900 bales by selling the same at Rs. 356 per candy  for  September  1945 delivery and  along  with  their letter dated the 27th August, 1945, sent contract ’note  No. 17996.  The 67 Respondent by his letter dated the 28th August, 1945,  reit- erated  the  story of previous instruction for  closing  the contract, denied having given any instruction to the  Appel- lants  to close the contract on the 27th August,  1945,  and returned  the contract note No. 17996.  On the 28th  August, 1945,  the Appellants wrote to the Respondent  claiming  Rs. 34,313  and expressing the desire to refer the  disputes  to arbitration in terms of the arbitration agreement  contained in the contract notes.  Both parties appointed their respec- tive  arbitrators.  The arbitrators entered upon the  refer- ence  and  eventually fixed the 24th October,  1945,  for  a meeting  of the arbitrators. The Respondent alleges that  he received  the notice of meeting only on 22nd October,  1945, and could not attend the meeting on the 24th October,  1945, as  he  had to appear before the Income Tax Officer  on  the same  day.   Accordingly, the Respondent sent his  agent  to attend the arbitration meeting and to obtain an adjournment. The  arbitrators,  however,  rejected  the  application  for adjournment  and made an ex parte award on the same day  for Rs.  34,313 and interest and costs.  Being aggrieved by  the award  the Respondent on the 10th November, 1945,  filed  an appeal  to the Board of the Association.   The  Respondent’s allegation  is  that pending the said appeal  he  discovered that the contract notes rendered by the Appellants from time to  time including the contract note No. 17996 were  not  in accordance  with  the prescribed official form  of  contract notes  of  the Association and he was advised  that  in  the premises the contracts were void under the provisions of the Bombay  Cotton  Contracts Act (IV of 1932)  and  that,  that being  so,  there was no arbitration agreement  between  the parties under which there could be any reference to arbitra- tion  on  which  any award could be  made.   The  Respondent thereupon  amended  his memorandum of appeal  to  the  Board pointing out the invalidity of the contracts and at the same time made a substantive application to the High Court  under the  Indian Arbitration Act for the reliefs  already  summa-



rised above.     In  order  to appreciate the rival  contentions  of  the parties  it is necessary  to  refer to the relevant 68 provisions of the Bombay Cotton Contracts Act, 1932, and the bye-laws of the said Association.     Section  (8)  (i) of the Bombay  Cotton  Contracts  Act, 1932, runs as follows :-     "Save  as hereinafter provided in this Act any  contract (whether  either party thereto is a member of  a  recognised cotton  association or not) which is entered into after  the date on which this Act comes into operation and which is not in  accordance  with the byelaws of  any  recognised  cotton association shall be void."     There is no dispute that the East India Cotton  Associa- tion  is one of the recognised cotton associations  for  the purposes of the said Act.  Bye-laws 80 and 82 of Chat  Asso- ciation are in the terms following :--     "80. Delivery Contracts between members shall be made on the  Official  form given in the Appendix.  Hedge  Contracts between  members  may be verbal or in writing  and  when  in writing  shall be in one or other of the forms given in  the Appendix.  Whether verbal or written all contracts shall  be subject to the bye-laws, provided that in the case of Deliv- ery Contracts Byelaws 149 to 163 inclusive shall not apply.     82.  Contracts  between  members  acting  as  commission agents’ on the one hand and their constituents on the  other shall,  be made subject to the bye-laws and a contract  note in the form given in the Appendix (pages 92, 93, 94 and  95) shall  be rendered in respect of every such contract.   Bye- laws  130 to 166 (inclusive) shall’ not apply to these  Con- tracts."     Bye-law 51-A originally required a deposit at a rate not less than Rs. 25 per bale and accordingly the contract  note submitted  by. the agent to the constituent used to  contain the  following clause at the end of the clause  relating  to payment of margin :-     "In  addition  to the above, the deposit  (not  carrying interest)  payable under bye-law 51-A;namely, at a rate  not less  than Rs. 25 per bale shall, when demanded, be made  by you to me/us in Bombay."     During the war bye-law 51-A was amended by reducing  the minimum amount of deposit from Rs. 25 per 69 bale  to Rs. 12-8-0 per bale and accordingly the  Government of  Bombay  by a Notification made on  the  19th  September, 1945,  in  exercise of the powers conferred  by  the  Bombay Options  in Cotton Prohibition Act, 1939 (Act XXV  of  1939) provided  that the contract note should also be  amended  so that the clause last quoted above should read as follows :--     "In  addition  to the above, the deposit  (not  carrying interest) payable under bye-law 51-A, namely, at a rate  not less than Rs. 12-1/2 per bale shall, when demanded, be  made by you to me/us in. Bombay."     In order to enforce war-time controls another  amendment of the bye-laws  was  made whereby a  new bye-law was  added as  bye-law 65-A. In view of this last  mentioned  amendment and  in order to bring the contract note between  the  agent and  the  constituent into line with this  new  bye-law  the Government of Bombay by the same Notification dated the 19th September  1944 directed the inclusion of the two  following clauses in the contract note, namely:     "If  this contract is a contract for sale, then  if  be- tween us and other members of the East India Cotton Associa- tion we become, under the bye-laws, the first seller of  the



cotton  so  sold and if the last buyer exercises  the  right given by bye-law 65-A, you will then be bound by the  provi- sions of that bye-law as between you and us.     If  this  contract  is a contract of  purchase,  and  if between us and other members of the East India Cotton  Asso- ciation Ltd., we become the last buyers unless we shall have received  express instructions from you in writing  to.  the contrary, before the commencement of the delivery period  if the contract is entered into before the commencement of  the delivery  period, or with the order if the contract  is  en- tered  into  during  the permitted days of  trading  in  the delivery  period, we shall be at liberty at our  option  and without  any further reference to you to exercise the  right given  to  the last buyer under bye law 65-A, and if  we  so exercise  the right you will be bound by the  provisions  of that bye-law as between you and us." 70     After  all  these  amendments the contract  note  to  be rendered  by  an agent to the constituent had to be  in  the form, a specimen copy whereof is set out at pages 17 and  18 of the Paper Book.  The contracts between the Appellants and the  Respondent were made after the aforesaid contract  note form came into vogue.  The official Contract Note form to be used after the aforesaid amendments opens with the following clause :--     "I/we  have this day sold/bought for you in Bombay  sub- ject to the following conditions and to the Bye-laws of  the East  India Cotton Association Ltd., in force from  time  to time  and subject also to my/our usual charges and terms  of business as Commission Agents."     Then  are   inserted  particulars  of  the  description, quantity, price etc., of the cotton which is the subjectmat- ter of the contract.  Then follows the clause for payment of margin,  the last sentence of which provides for payment  of deposit payable under bye law 51-A as amended, namely, at  a rate  not less than Rs. 121/2 per bale.  At the end  of  the form  are  to be found the two new clauses  required  to  be incorporated in every Contract Note by the Government  Noti- fication already referred to.     The  Contract Notes actually rendered by the  Appellants to the Respondent, however,. were in forms, a specimen  copy whereof  is  set out at pages 12--15 of the Paper  Book.   A comparison  of  the  two forms of the  contract  notes  will reveal the following differences :-     (1)  In the contract note rendered by the Appellants  to the  Respondent the last sentence providing for  deposit  at the end of the margin clause is missing. There is,  however, a  rubber  stamp impression on the top of the  back  of  the contract to the following effect :--     "In  addition  to the above, the deposit  (not  carrying interest) payable under bye-law 51-A, namely, at a rate  not less  than Rs. 25 per bale shall, when demanded, be made  by you to me/us in Bombay."     Evidently, this rubber stamp provision is a reproduction of  the  sentence that used to be found at the  end  of  the margin clause before bye-law 51-A was amended and the clause itself was amended by the Government Notification of 1944. 71 (2) The two new clauses required to be inserted in the  con- tract referred to above have also been omitted.    The  contention of the respondent was that  the  contract notes  actually issued were not in accordance with the  bye- laws  of  the Association and were  accordingly  void  under Section  8  of the Bombay Cotton Contracts  Act,  1932,  and that, that being so, the arbitration agreement  incorporated



in  the  contract note was also void and there could  be  no reference  to  arbitration and there could be  no  award  as purported  to have been made by the arbitrators on a  refer- ence under the void contracts.     The  matter  was dealt with by Mr.  Justice  Chagla  who overruled  the contentions of the Respondent  and  dismissed the application on 2nd  July 1946.  The learned Judge point- ed  out that whereas bye-law 80 required that delivery  con- tracts must be made on the official form and that the  hedge contracts,  when made in writing, must be made in  the  form given  in the Appendix, clause 82 did not require  that  the contracts between members acting as commission agents on the one  hand  and their constituents on the other  must  be  in writing  or  in particular form.  According to  the  learned Judge bye-law 82  required  two things, namely :-     (i)  that  the contracts referred to therein  should  be made subject to the bye-laws, and     (ii) that a contract note in the prescribed form  should be rendered in respect of every such contract.     The  learned Judge was of the opinion that section 8  of the  Bombay  Cotton Contracts Act, 1932,  only  avoided  the contracts  i.n case of contravention of the  first  require- ment, namely, if the contracts were not made subject to  the bye-laws,  but had no concern with the contravention of  the second  requirement, namely, if the contract notes were  not in  the prescribed form. The learned Judge appears  to  have made  a distinction between a contract and a  contract  note which was a mere evidence of the contract. According to him, even  if the contract note was not in the  prescribed  form, that fact did not affect the pre-existing contract which had only to be made subject to the bye-laws but need not have 10 72 been made in writing at all. Accordingly, the learned  Judge dismissed the application.     Being aggrieved by that decision, the Respondent went up on  appeal which was heard by Stone C.J. and Coyajee J.  who accepted the appeal, set aside the dismissal of the Respond- ent’s petition and  gave  the declaration prayed for and set aside the award.  The Appellants have now come up on  appeal before  us after having  obtained the necessary  certificate from the Bombay High Court.     We find ourselves in agreement with the decision of  the appellate  Court.  Ordinarily, when a contract  between  the parties  is  reduced  to writing, the  writing  becomes  the repository  of  the contract and that writing  only  can  be looked at to ascertain what the contract between the parties is,  and if that writing is not in accordance with the  bye- laws, the contract itself must be void.  We do not, however, feel  pressed to emphasize this aspect of the  matter,  for, assuming that there was a pre-existing oral contract between the  parties  dehors the written contract note, as  held  by Chagla  J.  we have yet to see whether  the  so-called  pre- existing oral contract was in accordance with the  bye-laws, for if it were not, then it would be hit by section 8 of the Bombay  Cotton Contracts Act, 1932.  There is no  suggestion that ’the terms of the so called pre-existing oral  contract were  in any way different from the terms  subsequently  re- corded in the contract notes actually issued.     In the first place we find that the last sentence in the margin  clause, in order to be in accordance with  the  bye- laws, should have been as follows :-     "In  addition  to the above, the deposit  (not  carrying interest) payable under bye-law 51-A, namely, at a rate  not less  than Rs. 121/2 per bale shall, when demanded, be  made



by you to me/us in Bombay."     Instead  of  that  sentence, we have  the  rubber  stamp impression reading as follows :-     "In  addition  to the above, the deposit  (not  carrying interest) payable under bye-law 51-A, namely, at a 73 rate not less than Rs. 25 per bale shall, when demanded,  be made by you to us in Bombay."     The respondent contends that this term is not in accord- ance  with the bye-laws of the Association.  The  Appellants on  the  other hand contend that there  is  no  discrepancy, because a provision for a rate not less than Rs. 25 per bale does  not contravene or is not inconsistent with the  provi- sion for a rate not less than Rs. 121/2 per bale.  In  other words, any rate above the rate of Rs. 121/2 may be stipulat- ed  in  accordance with the terms of business to  which  the contract was subject, for it did not contravene the require- ment that the rate should not be less than Rs. 121/2. It  is true that the opening clause of the contract note makes  the contract subject to the Appellants’ usual charges and  terms of business, but the contract is at the same time subject to the bye-laws of the Association.  In order to reconcile  the two, such terms of business as are not inconsistent with the bye-laws can only be permitted to prevail.  The rubber stamp provision clearly imposes on the respondent as the constitu- ent the liability to deposit a higher amount as the  minimum amount to be deposited and is to that extent not in  accord- ance with bye-law 51-A.  Apart from this consideration there is another serious objection to the rubber stamp  provision. The  language of that rubber stamp provision  clearly  indi- cates  that  it purports to summarise and set  out  what  is payable   under   bye-law   51-A.  In   fact,   as   already stated,above,  bye-law  51-A had been amended  and  what  is payable under the amended’ bye-law is not at a rate not less than  Rs. 25 but at a rate not less than Rs.  121/2.  There- fore, the rubber stamp provision wrongly summarises and sets out  the provisions of bye-law 51-A and consequently is  not in accordance with that bye-law.     The contention of the Respondent has been and is that by reason of the omission of the two clauses at the end of  the contract  note actually issued by the Appellants it was  not in accordance with the bye-laws. The learned Attorney-Gener- al  appearing for the Appellants contends that the  contract was expressly made subject 74 to  the bye-laws and, therefore, the provisions of  the  new bye-law 65-A were by reference incorporated in the contract. This  contention, we are satisfied,  is   unsound.   Bye-law 65-A in terms regulates the relationship between members and incorporation thereof in   a contract between a member agent and  an outsider   constituent will make no sense and  on  a plain reading   will be meaningless.  Further, under bye-law 65-A   the last buyer has certain options.  The  outstanding contract  being one for purchase of 900 bales, the    Appel- lants,  if they became the last buyers, could,   under  that bye-law,  exercise any of those options at   their own  dis- cretion.  In the second of the two clauses   which have been omitted  from the contract note this   option has been  made subject to express instructions of   the constituent to  the contrary,  for it provides that   the Appellants  as  agents would be free to exercise their option--    "unless  I/We  shall have received  express  instructions from you in writing to the contrary, before the    commence- ment  of  the delivery period if the contract  is    entered into  before  the commencement of the delivery    period  or



with the order if the contract is entered into   during  the permitted days of trading in the delivery   period."    By reason of the omission of the two clauses, this  right of the Respondent as constituent is not made a term of   the contract between the parties.  It follows, therefore,   that the so-called pre-existing oral contract is not in   accord- ance with the bye-laws on this ground also.  For  reasons stated above, this appeal fails and must    be dismissed with costs.    PATANJALI SASTRIJ.---I agree that this  appeal  should be dismissed with costs, but I would prefer to   rest my  deci- sion  solely on the ground of the omission   to  include  in the  contract in question the two clauses   newly  added  in the  prescribed  form in order to give   effect  to  bye-law 65-A.        Appeal dismissed. Agent for the appellants, Rajinder Narain. Agent for the respondent: M.S.K. Sastri. 75